Growth rate measures percentage change over time in revenue, earnings, cash flow, assets, or investment value.
Growth rate is a fundamental metric in economics and finance that measures the amount of change over a specified period in certain financial characteristics of an entity, such as sales revenue or profits. Typically expressed as a percentage, growth rate is instrumental in assessing the real performance of a company, especially when adjusted for inflation or other economic indicators like the Retail Price Index (RPI).
CAGR is the mean annual growth rate of an investment over a specified period longer than one year. The formula is:
This measures the annual increase in sales revenue, a critical indicator of business performance. The formula is:
This assesses the annual increase in net profit. Calculated as:
Understanding growth rates is crucial for multiple stakeholders:
When reviewing Growth Rate, ask where it enters the analysis: source data, adjustment, scenario, discount rate, multiple, terminal value, or sensitivity. If it changes enterprise value, equity value, return, leverage, margin, or comparability, show the bridge instead of burying the effect in a single estimate.