Growth rate is a measure that indicates the percentage change in a specific variable, such as revenue, profit, or population, over a defined period. It is used to assess the rate of expansion or contraction of a particular metric, reflecting how quickly it has increased or decreased.
The formula for calculating growth rate is: Growth Rate = ((Current Value - Previous Value) / Previous Value) * 100
The current value is the most recent measurement of the variable being analyzed. For example, if we are calculating a company's revenue growth rate, the current value would be the latest revenue figure. The previous value is the value of the variable at a previous point in time. It could be the revenue figure for the same company in the previous quarter, year, or any other designated period.
By comparing the current value to the previous value and applying the formula, we get the growth rate as a percentage. A positive growth rate indicates an increase in the variable, while a negative growth rate indicates a decrease.
For example, if a company's revenue was $10M in the previous year and has now increased to $12M this year, the growth rate would be: Growth Rate = (($12M - $10M) / $10M) * 100 = 20%. This means the company's revenue has grown by 20% from the previous year.
Growth rate is a valuable tool for investors, businesses, and policymakers to assess the performance and trends of various metrics over time. It helps in evaluating a business's success, the pace of economic expansion, and the overall health of an industry or market.