How to calculate growth rate and growth rate

Quite often, for the analysis of a number of dynamics, such statistical indicators as the growth rate in percent and the corresponding growth rate are used. At the same time, everything is usually clear with the first, but the second often raises different questions regarding both the interpretation of the obtained value and the calculation formula itself. The time has come to figure out how these quantities differ from each other and how they must be correctly determined.

Growth rate

This indicator is calculated in order to find out how many percent is one value of a series from another. In the role of the latter, the previous or basic value is most often used, that is, that which is at the beginning of the series under study. If the result is more than 100%, this means that there is an increase in the studied indicator, and vice versa. Calculating the growth rate is very simple: just find the ratio of the value for the reporting period to the value of the previous or base time period.

Unlike the previous one, this indicator allows you to find out not how much, but how much the investigated value has changed. A positive value of the calculation results means that there is a growth rate, and a negative value indicates the rate of decrease in the studied value in comparison with the previous or base period. How to calculate the growth rate? First, the ratio of the indicator under study is found to the base or previous, and then the unit is subtracted from the result, after which, as a rule, the total is multiplied by 100 to get it in percent. This method is used most often, but it happens that instead of the actual value of the analyzed indicator, only the value of the absolute increase is known. How to calculate the growth rate in this case? Here you already need to use an alternative formula. The second calculation option is to find the percentage of absolute growth to the level in comparison with which it was calculated.

Practice

Suppose we became aware that in 2010 Svetly Put joint-stock company made a profit of 120,000 rubles, in 2011 - 110,400 rubles, and in 2012 the amount of income increased by 25,000 rubles compared to 2011. Let's see how to calculate the growth rate and growth rate based on the available data, and which of these can be concluded.

1. Calculation of indicators for 2011.

Growth rate = 110,400 / 120,000 = 0.92 or 92%.

Conclusion: In 2011, the company's profit compared to the previous year was 92%.

Growth rate = 110,400 / 120,000 - 1 = -0.08, or -8%.

This means that in 2011 the revenues of Svetly Put JSC decreased by 8% compared to 2010.

2. Calculation of indicators for 2012.

Growth rate = (120,000 + 25,000) / 120,000 ≈ 1,2083 or 120.83%.

This means that the profit of our company in 2012 compared to the previous 2011 was 120.83%.

Growth rate = 25,000 / 120,000 - 1 ≈ 0.2083 or 20.83%.

Conclusion: the financial results of the analyzed enterprise in 2012 were greater than the corresponding indicator in 2011 by 20.83%.

Conclusion

After we figured out how to calculate the growth rate and growth rate, we note that on the basis of only one indicator it is impossible to give an unambiguously correct assessment of the phenomenon under study. For example, it may well turn out that the absolute increase in profit increases, and the development of the enterprise slows down. Therefore, any signs of dynamics must be analyzed together, that is, comprehensively.