In order to effectively manage and monitor a business or companies success over time, it is vital to analyze its growth rate.
The growth rate is the ultimate indicator of a businesses health and wellbeing in the long term.
Excel comes with a feature that makes calculating and analyzing growth rate far easier, however it can sometimes be tricky to find and use because of just how many additional tools and features Excel comes with that are scattered all around its menus.
Luckily calculating a company and businesses growth rate on Excel is easy to do once you know how, here is how you can calculate growth rate on the Excel programme.
Calculate Annual Growth Rate
The annual or yearly growth rate is the most common way most businesses will inspect how much they have been growing for a period.
Step 1 – Create Table
Firstly to calculate the growth rate, you will need a table laid out with the years and data so that the programme can measure the average growth rate from this information.
These should be side by side with the year in one column, and the other data (Amount made that year) in the column next to it.
Also keep in mind that when calculating annual growth rate, you can either put the same date in each row but with a different year, or you can put just a different month in the same year in each, so that Excel can measure annually over either one year or multiple.
Finally, always put the most recent data at the bottom of the column, with the older date at the very top.
Step 2 – Calculate Annual Growth
Next, once you have the value of each year or month, you will be able to calculate the annual growth rate by typing in this formula: (Ending value / Beginning value) – 1
Step 3 – Find Average Annual Growth Rate
Now the annual growth rate for each year should appear next to the values once you press enter.
To then go on and find the average annual growth rate, type in this formula into Excel =AVERAGE(C3:C6) while an empty space is highlighted.
With this simple formula, Excel will calculate the average sum of growth over all the values and insert it into the space.
Calculate Annual Growth Rate With Excel XIRR Function
The XIRR function built into most newer editions of Excel functions to return the internal rate of a return for a series of investments that may or may not occur on a regular basis.
They can also therefore calculate the growth rate of a particular company quite easily.
Step 1 – Create Table
To start, similar to before you will need a table already laid out with different years and their sale value for each year.
Step 2 – Choose Empty Cell
You will then need to pick an empty cell where you would like to store the data of the annual growth rate
Step 3 – Write Formula
In that cell, write this following formula =XIRR(F5:F6, G5:G6)
Press Enter once you have typed this in.
Step 4 – Analyze Growth Rate
In the empty cell the growth rate will now appear, making for a much easier way to inspect and analyze how a company has been progressing.
How Do Get The Growth Rate As A Percentage
In some versions of Excel once you type these formulas, the result will appear in the empty cell as a percentage.
It can however instead appear as a few numbers and decimal points, to resolve this simply scroll over the ‘Home’ toolbar which you can find in the top left.
At the far right under ‘General’ there will be a percentage icon, click this and then change the decimal space with the button next to it.
This will automatically change the result to a percentage, making it much easier to utilize and giving a much clearer indication as to how much a business has grown.
How To Use Growth Rates?
The way most people will use growth rates and why they decide to analyze them in the first place is so they can assess a firm’s growth periodically and can then make more accurate predictions for the future.
If over the span of 10 years the growth has been seen to be by a positive amount in terms of the percentage, then it is growing at a steady pace and means only some additions need to be added to what the company is already doing.
This can differ massively depending on the type of company, for example companies that are known for being on the cutting edge of technology and are selling these products to customers will often have much higher annual growth rates than retail companies for example which will usually experience a much steadier and gradual growth.
A big part of finding and understanding growth rates is therefore to be realistic with what your company should expect to see and how much it has grown given its size.
It is incredibly useful to find a growth rate because not only can it give you a clearer insight into what might need to be done to improve the company in the near future, but it is crucial to the long term survival of a business in general as it can help to acquire assets, attract new talent and fund investments depending on how the company is growing.
Finding out the growth rate of a company or business is vital to sustaining it in the long term so it is also worth checking it over the course of a few years or even just a few months.
Luckily, Excel makes this job very easy with just the need of a few formulas, so it can be a great idea to check in on this every so often to get a clear idea of where the business is headed.