How To Calculate Growth Rate (With Examples)

By Indeed Editorial Team

Updated June 2, 2022 | Published February 25, 2020

Updated June 2, 2022

Published February 25, 2020

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

When dealing with investments or assets, there are several numbers to consider that help you understand the value of what you have. Growth rate, also commonly referred to as "percent change," is one of the calculations that are important to consider. Understanding how to calculate growth rate can help you measure change over time and represent that change as a percentage.

In this article, we teach you several methods for calculating growth rate, including calculation examples.

Key takeaways:

  • Determining the growth rate can help you to make predictions about an investment’s or asset’s future growth.

  • Gross domestic product is an example of growth rate, which measures the market value of a country's goods and services over a period of time.

  • Growth rate allows you to see how fast an indicator has risen or declined.

What is growth rate?

Growth rate, or "percentage change," is the amount in which the value of an investment, asset, portfolio or business increases over a specific period. The growth rate provides you with important information about the value of an asset or investment as it helps you understand how that asset or investment grows, changes and performs over time. This information can help you predict the future revenue of a specific asset or investment.

Why is growth rate important?

Growth rate is important as it can help you make predictions about future growth. Growth rate can be used to represent:

  1. The percent change in the overall population from one year to another

  2. The performance of a business and its expected future growth

  3. The expected future growth of other assets and investments

Growth rate calculation methods

There are three types of formulas you can use to calculate growth rate depending on your situation:

1. Straight-line percent change method

The straight-line percent change method is the most common formula used to calculate basic, simple growth rates. This growth rate calculation method works best when calculating simple growth rates that you don't need to compare to other results. However, it is important to know that this formula may not produce uniform results for negative changes in growth. This limitation of the straight-line percent change method is known as the end-point problem.

2. Midpoint method

The midpoint-method is a formula used to calculate growth rate when you need to use the information to make comparisons. The benefit of using the midpoint method is that it provides uniform results regardless of the direction of change and avoids the end-point problem that exists when using the straight-line percent change method. The midpoint method overcomes this challenge by using the average of the original and ending values as the denominator.

3. Calculating the average growth rate over time

The straight-line percent change calculation method and the midpoint calculation method work well when you are comparing the change in growth between two years. However, when you are comparing the change in growth for several years, it is best to use this calculation method to find the average growth rate per year.

How to calculate growth rate using the straight-line percent change method

Follow these steps to calculate growth rate using the straight-line percent change method:

1. Write out the formula

The first step is to write out the straight-line percent change formula. The formula will act as the foundation for your calculation. For this formula, you will need to know the original value and the new value. The formula used for the straight-line percent change method is to divide the absolute change by the original value.

(Growth rate = Absolute change / Original value)

2. Find the absolute change

The first calculation you need to find when using the straight-line percent change method is the absolute change between the new value and the original value. You can calculate absolute change simply by subtracting the original value from the new value. The resulting difference is the absolute change.

(Absolute change = New value - Original value)

3. Divide the absolute change by the original value

Next, divide the absolute change by the original value. The answer to this calculation is the growth rate.

(Growth rate = Absolute change / Original value)

4. Convert to a percentage

Finally, you need to convert the growth rate into a percentage to represent the percent of change. To convert the growth rate to a percentage, simply multiply the growth rate by 100.

(Percent change = Growth rate x 100)

How to calculate growth rate using the midpoint method

Follow these steps to calculate growth rate using the midpoint method:

1. Write out the formula

The first step is to write out the midpoint formula. The formula will act as the foundation for your calculation. For the midpoint formula, you will need to know the original value, the new value and the average of the two values. The formula used for the midpoint method is to divide the absolute change by the average value.

(Growth rate = Absolute change / Average value)

2. Find the absolute change

The first calculation you need to find when using the midpoint method is the absolute change between the new value and the original value. You can calculate absolute change simply by subtracting the original value from the new value. The resulting difference is the absolute change.

(Absolute Change = New Value - Original Value)

3. Find the average value

Next, you will need to calculate the average of the original value and the new value. You can calculate the average value by adding the two values together and dividing by two.

(Average value = Sum of values / 2)

4. Divide the absolute change by the average value

Next, divide the absolute change by the average value. The answer to this calculation is the growth rate.

(Growth rate = Absolute change / Average value)

5. Convert to a percentage

Finally, you need to convert the growth rate into a percentage to represent the percent of change. To convert the growth rate to a percentage, simply multiply the growth rate by 100.

(Percent change = Growth rate x 100)

How to calculate the average growth rate over time

Follow these steps to calculate the average annual continuous growth rate:

1. Write out the formula

The first step is to write out the average growth rate over time formula. The formula will act as the foundation for your calculation. For the average growth rate over time formula, you will need to know the values for each year and the number of years you are comparing. The formula used for the average growth rate over time method is to divide the present value by the past value, multiply to the 1/N power and then subtract one. "N" in this formula represents the number of years.

[Growth rate = (Present value / Past value) 1/N - 1]

2. Find the difference between the present and past value

The first calculation you need to find when using the average growth rate over time calculation method is the difference between the present value and the past value. You can find this value simply by subtracting the past value from the present value.

(Present value - Past value)

3. Multiply the difference to the 1/N power

Next, you will need to multiply the resulting difference from step two to the 1/N power, where N represents the number of years.

(Difference) 1/N

4. Subtract one

Next, subtract one from the resulting answer from step three.

(Growth rate = Step 3 answer - 1)

5. Convert to a percentage

Finally, you need to convert your answer into a percentage to represent the average annual growth rate per year. To convert the growth rate to a percentage, simply multiply the growth rate by 100.

(Percent change = Growth rate x 100)

Growth rate examples

Here are examples of growth rate calculations using each of the different calculation methods:

1. Straight-line percent change method example

In this example, we'll find the growth rate for the number of students enrolled in a preschool over the last two years. This year, there were 489 students enrolled in the preschool and last year there were 402 students enrolled in the preschool. The straight-line percent change calculation would look like this:

  1. Growth rate = (489 - 402) / 402

  2. Absolute change = 87 (489 - 402)

  3. Growth rate = 0.2164 (87 / 402)

  4. Percent change = 21.64% (0.2164 x 100)

2. Midpoint method example

The end-point problem can be seen using the previous example if the original value is 489 and the new value is 402. This would make the calculation for the straight-line percent change formula (402 - 489) / 489. Because there was a regression in growth in this example, the straight-line percent change formula results in a percent change of -17%. The end-point problem shown here is that the percent change is 21% when represented as a positive growth but is -17% when represented as a regression in growth. The midpoint method resolves this issue:

  1. Growth rate = [(489 - 402) / (489 + 402)/2] or [(402 - 489) / (489 + 402)/2]

  2. Growth rate = (87 / 445.5) or (-87 / 445.5)

  3. Growth rate = 0.1952 or -0.1952

  4. Percent change = 0.1952 x 100 or -0.1952 x 100

  5. Percent change = 19.52% or -19.52%

In this example, you can see that by changing the denominator to the average value, the only difference between the positive and negative growth rate calculations is the positive or negative sign. Thus, the midpoint method of calculation provides a more uniform result in the growth rate calculation.

3. Average growth rate over time example

You would use the average growth rate over time method to calculate the average annual growth rate for several years. For example, the preschool's enrollment numbers for the past four years are...

  • 350 in 2016

  • 390 in 2017

  • 402 in 2018

  • 489 in 2019

You can use the average growth rate over time calculation method to find the average annual growth rate for the preschool. In this example, the present value is 489, the past value is 328 and the number of years is 4:

Growth rate after 2016: (390 - 350) / 350 x 100 = 11.43%
Growth rate after 2017: (402 - 390) / 390 x 100 = 3.08%
Growth rate after 2018: (489 - 402) / 402 x 100 = 21.64%

Average growth rate over time = (11.43% + 3.08% + 21.64%) / 3 = 12.05% per year

Jobs for those who use growth rate

If you're interested in learning how organizations or operations change over time, there are many jobs for you to pursue. Here are 10 types of professionals who use growth rate in their job:

1. Accountant

2. Financial advisor

3. Chief executive officer

4. Business owner

5. Vice president of operations

6. Marketing director

7. Actuary

8. General manager

9. Investment banking analyst

10. Finance clerk

Discover Indeed’s top resources for finance and accounting talent including career advice, sample resumes, job search quick links and more.

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