Instruction:
How to calculate growth rate?

Response:
The term “growth rate” describes the rate of change in the value of a specific metric across a given time period, expressed as a percentage.

Common examples of scenarios where the growth rate is often used are the following:

Company Sales
Population Figures
Gross Domestic Product (GDP)
Inflation Rate
Under the specific context of financial modeling, the growth rate is most frequently on a quarterly or annual basis (i.e. year-over-year).

More defensible predictions can be made about the future trajectory of a metric in question by determining its historical growth, which can serve as a practical point of reference for forecasting purposes.

However, the metric’s usefulness is still tied to the extent that the underlying drivers are identified and researched in-depth.

By itself, calculating the historical growth is not enough, because what actually caused the past growth and which qualitative factors are likely to determine a metric’s future growth must also be clearly understood.


The following formula can be used to calculate the growth rate across two periods.

Growth Rate (%) = (Ending Value ÷ Beginning Value) – 1
For example, if a company’s revenue was $100 million in 2020 and grew to $120 million in 2021, its year-over-year (YoY) growth rate is 20%.

Growth Rate = ($120 million ÷ $100 million) – 1 = 0.20, or 20%