How to find growth rate of assets and investments or sales? For that you need to first determine the value of the asset or investment at the beginning of the period and the value at the end of the period. Then, you subtract the beginning value from the ending value and divide it by the beginning value.
This will give you the percent change in the value of the asset or investment. Before we understand this with an example, Let’s understand the meaning and importance of growth rate.
What is Growth Rate?
A growth rate is the rate at which something grows. It can be used to measure the growth of a population, an economy, or anything else that experiences growth. Growth rates are usually expressed as a percentage.
For example, if a population is growing at a rate of 2% per year, that means it is increasing by 2% each year.
Growth rates can be positive or negative. A positive growth rate indicates that something is growing, while a negative growth rate indicates that it is shrinking. A growth rate can also be zero, which means that there is no change.
Growth rates are important because they can be used to predict the future. For example, if a population is growing at a rate of 2% per year, it is expected to double in size every 35 years.
This information can be used to make decisions about things like infrastructure and resources.
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There are many different factors that can affect growth rates. For example, a change in the birth rate or death rate can impact population growth. Economic factors like unemployment and inflation can also affect growth rates.
The growth rate of assets and investments is a key metric for assessing the health of an economy. A high growth rate indicates that businesses and individuals are investing in the economy and that the economy is growing.
A low growth rate indicates that businesses and individuals are not investing in the economy and that the economy is not growing.
Why is Growth Rate important?
The growth rate is important in investment because it is a key metric used to measure the performance of an investment.
It is a measure of how fast an investment is growing and is typically expressed as a percentage. The higher the growth rate, the faster the investment is growing and the more potential it has to generate returns.
The growth rate is important because it can be used to compare the performance of different investments. It is also a key factor in determining the value of an investment and its potential for future growth.
How to find Growth Rate?- 3 Methods
We will discuss the 3 methods of Growth Rate calculation.
1. Straight-line percent change
The straight-line percent change method is a simple way to calculate the percent change between two points in time. This method assumes that the change is linear, which may not be the case in reality. However, it is still a useful tool for understanding the overall direction of change.
To calculate the straight-line percent change, simply subtract the starting value from the ending value, and then divide by the starting value. The resulting number is the percent change.
For example, if the starting value is 100 and the ending value is 120, the percent change would be 20%.
While this method is easy to use, it does have its limitations. First, it only works for two points in time. Second, it assumes that the change is linear, which may not be the case in reality.
However, despite these limitations, the straight-line percent change method is still a useful tool for understanding the overall direction of change.
2. Midpoint Growth Rate Method
The midpoint growth rate method is a mathematical technique used to estimate the growth rate of assets or investments.
The method is based on the principle that the growth rate of investment is proportional to the difference between the investment size at the beginning and end of a given period of time.
The midpoint growth rate method can be used to estimate the growth rate of an investment over a wide range of time periods, from a single time frame to many. The midpoint growth rate method is a powerful tool for investment analysts and other researchers who study investment dynamics.
3. The Average Growth Rate Over Time
To find the average growth rate over time, you will need to first find the growth rate for each period of time. To do this, you will need to find the difference in the value from one period to the next and divide it by the number of time periods.
Once you have the growth rate for each period of time, you can then take the average of all of the growth rates to find the average growth rate over time.
The average growth rate over time is a very important statistic. It tells us how fast an investment is growing and can help us predict future investment size. It is also used to calculate things like the investment doubling time.
Growth rate calculation example
The salary of Mr. Woodworth is given below. Find the Growth Rate of the salary and also explain it.
| Sr. No. | Year | Annual Salary |
| 1 | 2018 | $5000 |
| 2 | 2019 | $6000 |
For the calculation of the “Average Growth Rate Over time” consider a salary of $6500 for the year 2020 & $7000 for 2021.
Ans.
1. Straight-line Percent Change method.
Absolute change = New Value – Previous Value
Growth rate = (Absolute change / Previous value) x 100
Absolute Change = $6000 – $5000 (New Value = $6000, Previous Value = $5000)
Absolute Change = $1000
Now, putting Absolute Change in Formula
Growth rate = (Absolute change / Previous value) x 100
Growth Rate = ($1000 / $5000) x 100
Growth Rate = 20%
Explanation: We can see that in the year 2019, Mr. Woodworth got a hike in salary of 20% compared to the year 2018.
2. Mid-Point Growth Rate Method
Absolute change = New Value – Previous Value
Average Value = (Previous Value + New Value) / No. of years
Growth rate = (Absolute change / Average Value) x 100
We know from the above example that the absolute change is $1000.
Now Let’s find Average Value = ($5000 + $6000) / 2 (No. of Years)
Average Value = 11000 / 2 = $5500
Growth rate = (Absolute change / Average Value) x 100
So, ($1000 / $5500) x 100
Growth Rate = 18.18 %
3. Average Growth Rate Over Time
The formula of Growth rate = (Current value / Previous value) x 1/N – 1
N= Number of Years
Now considering salary:
| Sr. No. | Year | Annual Salary |
| 1 | 2018 | $5000 |
| 2 | 2019 | $6000 |
| 3 | 2020 | $6500 |
| 4 | 2021 | $7000 |
- Growth rate after 2018: (6000 – 5000) / 5000 x 100 = 20.00%
- Growth rate after 2019: (6500 – 6000) / 6000 x 100 = 8.33%
- Growth rate after 2020: (7000 – 6500) / 6500 x 100 = 7.69%
Average growth rate over time = (20.00% + 8.33% + 7.69%) / 3 = 12.00% per year
How do you calculate the growth rate of a company?
There are a few different ways to calculate the growth rate of a company. One way is to look at the company’s revenue growth.
You can calculate this by taking the company’s revenue for the current period and dividing it by the company’s revenue for the same period last year.
Another way to calculate the growth rate is to look at the company’s earnings growth. You can calculate this by taking the company’s earnings for the current period and dividing them by the company’s earnings for the same period last year.
You can also look at the company’s growth in terms of the number of employees, customers, or other metrics. To calculate this, you would take the current number of employees/customers/etc and divide it by the number of employees/customers/etc last year.
Finally, you can also look at the company’s stock price growth. To calculate this, you would take the company’s stock price at the end of the current period and divide it by the company’s stock price at the end of the same period last year.
All of these different growth rates can give you a good idea of how a company is performing and how it is growing.
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How do you calculate the growth rate in Excel?
To calculate the growth rate in Excel, you can use the Growth function. This function takes three arguments: the first is the known y-values, the second is the known x-values, and the third is the new x-value.
For example, if you have data points for the years 2010, 2011, and 2012, and you want to know the growth rate for 2013, you would use the following formula:
=Growth (2010,2011,2012,2013)
This would give you the growth rate for 2013.
Very nice article
Thank you Hetal…