How to Calculate Annual Growth Rate

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This article was co-written by Michael R. Lewis. Michael R. Lewis is a retired Texas executive, entrepreneur and investment advisor. He has over 40 years of experience in Business & Finance, including the position of Vice President of Blue Cross Blue Shield of Texas. He holds a BBA in Industrial Management from the University of Texas at Austin.

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Growth rate is a very useful indicator for looking at investment opportunities. Municipalities, schools and other groups also often use the annual growth rate of the population to predict demand for construction, services, etc. This statistic is very important and useful, and it is not too difficult to calculate on your own. Growth rate is a very useful indicator for looking at investment opportunities. Municipalities, schools and other groups also often use the annual growth rate of the population to predict demand for construction, services, etc. This statistic is very important and useful, and it is not too difficult to calculate on your own.

Table of Contents

Calculate growth in a year

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Get the starting value. To calculate the growth rate, you need to have a starting value. The starting value is population, sales, or whatever metric you’re looking at at the beginning of the year.

For example, at the beginning of the year the population of a village is 125, the starting value is 125.

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Get the last value. To calculate the growth, you need not only the starting value, but also the ending value. That value is population, revenue, or whatever metric you’re looking at at the end of the year.

For example, if the village’s year-end population is 275, the final value is 275.

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Calculate the growth rate for the year. The growth rate is calculated according to the following formula: Growth rate for the year =

End value - Start value

Initial value

*

100

{displaystyle {frac {text{End value – Start value}}{text{Start value}}}*100}

{frac {{text{End value - Start value}}}{{text{Start value}}}}*100

^{[1] X Research Source}

For example, a village at the beginning of the year has 150 people, and increases to 275 people at the end of the year. The calculation of the growth rate for the year is as follows:
Growth rate $=$ $275$ $-$ $150$ $150$ $*$ $100$ ${displaystyle ={frac {275-150}{150}}*100}$ $={frac {275-150}{150}}*100$
$=$ $125$ $150$ $*$ $100$ ${displaystyle ={frac {125}{150}}*100}$ $={frac {125}{150}}*100$
≈ $0.8333$ $*$ $100$ ${displaystyle 0.8333*100}$ $0.8333*100$
= $83.33$ $%$ ${displaystyle 83.33%}$ $83.33%$

Calculate the annual growth of many years

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Get the initial value. To calculate the growth rate, you need a head value. The head value is population, revenue, or whatever metric you’re looking at at the beginning of the period.

For example, if a company’s sales at the beginning of the period were $10,000, then the initial value is $10,000.

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Get the last value. In addition to the beginning value to calculate the annual growth rate, you also need the end value. That value is population, sales, or whatever metric you’re looking at at the end of the period.

For example, if the company’s sales at the end of the period were $65,000, the ending value would be $65,000.

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Decide on the number of years to calculate. Since you are measuring the growth rate of a period, you need to know the number of years in the period.

For example, if you want to calculate the annual growth rate of the company’s revenue from 2011 to 2015, the number of years is 4 i.e. from 2015 to 2011.

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Calculate the annual growth rate. The formula for calculating the annual growth rate is the Annual Growth Rate

=

(

(

f

S

)

first

y

-

first

)

*

100

{displaystyle =(({frac {f}{s}})^{frac {1}{y}}-1)*100}

=(({frac {f}{s}})^{{{frac {1}{y}}}}-1)*100

where f is the end value, s is the beginning value, and y is the number of years. ^{[2] X Research Source}

Example: A company earns $10,000 in 2011 and four years later in 2015 it earns $65,000. So what is the annual growth rate?
Enter the above values into the growth rate formula to find the answer:
Annual growth rate $=$ $($ $($ $65000$ $10000$ $)$ $first$ $4$ $-$ $first$ $)$ $*$ $100$ ${displaystyle =(({frac {65000}{10000}})^{frac {1}{4}}-1)*100}$ $=(({frac {65000}{10000}})^{{{frac {1}{4}}}}-1)*100$
$=$ $($ $6.5$ $first$ $4$ $-$ $first$ $)$ $*$ $100$ ${displaystyle =(6.5^{frac {1}{4}}-1)*100}$ $=(6.5^{{{frac {1}{4}}}}-1)*100$
≈ $($ $1.5967$ $-$ $first$ $)$ $*$ $100$ ${displaystyle (1.5967-1)*100}$ $(1.5967-1)*100$
= 59.67% annual growth
Note – raise the value of a to the power $first$ $b$ ${displaystyle {frac {1}{b}}}$ ${frac {1}{b}}$ will be equivalent to the square root b of a . You may need a calculator with a ” $n$ $x$ ${displaystyle n{sqrt {x}}}$ $n{sqrt {x}}$ ” to calculate, or using an online calculator.

Steps

Calculate growth in a year

Calculate the annual growth of many years

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