Growth rate is important to investors and management to determine future success of a business. A company's growth is measurable in several categories. These categories include profit growth, employee growth, asset growth or any other type of variable an investor or management thinks is an important indicator of future success to the company. After determining which variable an investor or management wishes to determine the growth rate for, an investor or management simply applies a growth formula.
Determine which variable to which to apply the growth rate formula. These can include how much has profitability grown in the company or is the company growing in terms of employees. After determining the variable, find the beginning and ending amount of the variable for the period under analysis. For example, at the beginning of the year, the company had $100,000 in assets, and the prior year had $500,000 in revenue. At the end of the year, the company had $200,000 in assets and $700,000 in revenue.
Subtract the ending variable from the beginning variable. In the examples, $200,000 in assets minus $100,000 in assets, which equals $100,000 change in assets. For the other example, $700,000 of revenue minus $500,000 in revenue, which equals $200,000 of revenue.
Divide the change in the variable by the original variable. In the example, a $100,000 change in assets divided by $100,000 in assets equals a 100 percent growth rate. In the other example, a $200,000 change in revenue divided by $500,000 in revenues equals a 40 percent growth rate.
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