Company Growth Rate Calculator
Understanding Company Growth Rate
The growth rate of a company is a key metric used to assess its performance and expansion over a specific period. It quantizes how much a company's value, revenue, profits, or other financial indicators have increased (or decreased). A positive growth rate generally indicates a healthy and expanding business, while a negative rate might signal challenges or a declining market position.
This calculator helps you determine the compound annual growth rate (CAGR) of a company based on its starting value, ending value, and the time period over which this change occurred. CAGR provides a smoothed rate of return, assuming that profits were reinvested at the end of each year of the period. It's a more accurate representation of growth than simple average growth, especially over longer durations, as it accounts for compounding effects.
How it's Calculated:
The formula for Compound Annual Growth Rate (CAGR) is:
CAGR = ( (Ending Value / Starting Value) ^ (1 / Number of Years) ) – 1
This formula essentially finds the average annual rate of return that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each year.
Example:
Let's say a company had a starting revenue of $1,000,000 five years ago, and its current revenue is $1,200,000. The time period is 5 years.
- Starting Value: $1,000,000
- Ending Value: $1,200,000
- Time Period: 5 years
Using the formula: CAGR = ( ($1,200,000 / $1,000,000) ^ (1 / 5) ) – 1 CAGR = ( 1.2 ^ 0.2 ) – 1 CAGR = 1.037137 – 1 CAGR = 0.037137 or approximately 3.71%
This means the company's revenue has grown at an average annual rate of 3.71% over the last five years.