Calculating the annual percentage growth rate is the easiest and the quickest way to compare the yearly growth of any trend. These trends can be in the form of any comparable thing, which can include the yearly growth of company, rise in the salary of an employee, population growth of an urban or rural area and increase in the height and weight of a person.

The annual percentage growth rate becomes a useful tool while investigating the investment opportunities, this helps to get the changing trends of that very investment source and hence, the investor can be made sure whether or not to invest on that investment plan.

A very common example of the same can be seen in the stock market, which runs on exactly the same principle where the investors compare the annual growth rates of various stocks and then choose to invest their money on that stock.

The annual percentage growth rate is not only important in the finance industry but it is also used in a variety of other fields such as schools, municipality offices, sports trainers and various other fields. Despite being such a useful tool to get the growth rate of nearly anything, it is just a matter of merely seconds to calculate the growth rate of almost anything. Let’s check it how to calculate the annual percentage growth.

Instructions to calculate annual percentage growth rate:

Absolute Returns

  • Get the value which is the starting value of the thing whose growth you wish to check. This means that if you are calculating the sales of a company in a year, you need to record the sales of the company on the starting of the time.
  • Let us take an example, suppose the sales of the company you need to check is 22L. You need to record that sales.
  • Obtain the final value. After the completion of time period, record the final value of the thing that you need to record. It can also be explained as, when you are calculating the sales of that company, you will need to record the sales of the company on the end of the year.
  • For example, let’s suppose the sales of the company after five year is recorded to be 22L. Note that value as well.

The formula for calculating the absolute returns can be given as

Absolute Returns%= [(final value – initial value)/initial value] *100

In this formula, the value of [final value – initial value)/initial value] will give the absolute returns in decimal units so that value is multiplied by 100 to get a value in percentage.

Example:

we have the initial value equal to 10L and the final value equal to 22L. After putting these values into the above stated formula, we will get the equation to be

 

Year –               1        2        3        4        5        6 

Value –            10L   15L   18L   16L   20L   22L

 

Absolute returns %= [(22L – 10L)/10L] *100

Absolute returns %= [12L/10L]*100 = 120%

 

Annual Returns

Now with the help of Absolute returns we can easily calculate annual returns. Basically annual returns has two types.

  • Simple Annual percentage growth rate (SAGR)
  • Compound Annual percentage growth rate (CAGR)

 

Simple Annual Percentage growth rate

The annual percentage growth rate is simply the percent growth divided by n, the number of years (time period). So let’s calculate:-

SAGR = {(FV – IV)/IV} × 1/n

OR

SAGR = (absolute returns %) /n

n → time period

So SAGR = (120%)/5 = 24%

Value (SAGR)

Year123456
Value10,00,00010,00,000 + 2.4L = 12,40,00012,40,000 + 2.4L = 14,80,00014,80,000 + 2.4L = 17,20,00017,20,000 + 2.4L = 19,60,00019,60,000 + 2.4L = 22,00,000

 

 

It can be clearly seen that from the formula the total annual percentage growth rate can be calculated to 24%

In a similar way, this formula can be used to calculate the annual percentage growth rates of a variety of other things like population growth, rise in the salary of an employee, growth of a company, weight of a person, etc.