How To Calculate Growth Rate Using Different Methods/Formulas
What is Growth Rate?
The growth rate simply means the percentage of the change of a specific variable with the specified time duration. It measures the change of a variable from one period to another (yearly, quarterly, or monthly).
The growth rate is commonly used to measure many different variables such as GDP, Revenue, Profits, Cost, Investment, Returns, turnover, salaries, etc.
Growth Rate Calculation Methods
There are three methods to calculate Growth Rate,
- Straight Line (Percent Change) Method
- Midpoint Method
- Compound Annual Growth Rate (CAGR)
Refer following for the formulas used for the growth rate calculation of each method,
1) Straight Line (Percent Change) Method
The straight-line percent change method is the most simple formula to calculate the growth rate. ‘Present value’ and ‘past value’ are used for the calculation.
Formula to calculate the growth rate using straight-line percent change method,
Formula = [ ( Vpresent – Vpast ) / Vpast ] x 100
2) Midpoint Method
This growth calculation method is used when it is needed the uniform output regardless of whether the change is positive or negative. The change is compared with the average of the past and present values.
Formula to calculate the growth rate using midpoint method,
Formula = ( Vpresent – Vpast ) / [ ( Vpresent – Vpast ) / 2 ] x 100
3) Compound Annual Growth Rate (CAGR)
The compound annual growth rate method is useful when comparing the growth for several years. This results in the average growth rate per year,
Formula to calculate the growth rate using compound annual growth rate method,
Formula = [ ( Vpresent / Vpast ) 1 / No of Years ] – 1
Learn More About Growth Rate: