Growth rates refer to the percentage change of a specific variable within a specific time period. Growth rates can be positive or negative, depending on whether the size of the variable is increasing or decreasing over time. Growth rates were first used by biologists studying population sizes, but they have since been brought into use in studying economic activity, corporate management, or investment returns.
For investors, growth rates typically represent the compounded annualized rate of growth of an investment, or a company’s revenues, earnings, or dividends. Growth rates are also applied to more macro concepts, such as gross domestic product (GDP) and unemployment. Expected forward-looking or trailing growth rates are two common kinds of growth rates used for analysis.
Growth rates are used to express the annual change in a variable as a percentage.
A positive growth rate indicates a variable is increasing over time; a negative growth rate indicates that it is decreasing.
Growth rates can be beneficial in assessing a company’s performance and predicting future performance.
Growth rates are computed by dividing the difference between the ending and starting values for the period being analyzed and dividing that by the starting value.
Time periods used for growth rates are most often annually, quarterly, monthly, and weekly.Understanding Growth Rates
At their most basic level, growth rates are used to express the annual change in a variable as a percentage. For example, an economy’s growth rate is derived as the annual rate of change at which a country’s GDP increases or decreases. This rate of growth is used to measure an economy’s recession or expansion. If the income within a country declines for two consecutive quarters, it is considered to be in a recession.How to Calculate Growth Rates
Growth rates can be calculated in several ways, depending on what the figure is intended to convey. A simple growth rate simply divides the difference between the ending and starting value by the beginning value, or (EV-BV)/BV. The economic growth rate for a country’s GDP can thus be computed as
