Growth Rate Calculator
Understanding Growth Rate Calculation
The growth rate is a fundamental concept used across various fields, from finance and economics to biology and population studies. It measures the percentage change in a value over a specific period. A positive growth rate indicates an increase, while a negative growth rate signifies a decrease.
How is Growth Rate Calculated?
The most common formula for calculating the average growth rate over a period is:
Growth Rate = &frac{(Ending Value – Starting Value)}{Starting Value} × 100%
If you need to calculate the annualized growth rate over multiple periods, the formula becomes slightly more complex and involves compounding. However, for a simple growth rate over a single period, the above formula is used. The calculator above uses this basic formula to show the overall growth percentage.
If a time period is specified, the calculator can also provide the average annual growth rate (AAGR). The formula for AAGR is:
AAGR = &frac{Growth Rate}{Time Period}
This gives you the average percentage growth per unit of time.
Example:
Let's say you invested $1,000 (Starting Value) and after 5 years, its value grew to $1,200 (Ending Value).
- Starting Value = 1000
- Ending Value = 1200
- Time Period = 5 years
Using the formula:
Growth Rate = &frac{(1200 – 1000)}{1000} × 100% = &frac{200}{1000} × 100% = 0.2 × 100% = 20%
The total growth over 5 years is 20%.
To find the Average Annual Growth Rate (AAGR):
AAGR = &frac{20\%}{5 \text{ years}} = 4\% \text{ per year}
This means, on average, your investment grew by 4% each year.