# How to Calculate the Rate of Growth

#### 11 SEP 2015

#### CLASS

The rate of growth is an important figure for both businesses and investors. Businesses that can show a consistent growth rate are more favorable for investors. When determining the annual rate of growth, you need to take into account the effects of interest compounding. You can find the rate of growth for any given period, but you need to know the value at the start of that period and at the end of that period.

- Calculator

## 1 Divide the final value by the initial value

Divide the final value by the initial value to find the overall rate of increase. For example, if the value of the company grew from $120,000 to $270,000 over 10 years, you would divide $270,000 by $120,000 to find the overall rate of increase to be 2.25.

## 2 Divide 1

Divide 1 by the number of years over which the growth occurred. In this example, you would divide 1 by 10 to find 0.1.

## 3 Raise the Step 1 answer

Raise the Step 1 answer to the Nth power, where N is the Step 2 result. In this example, you would raise 2.25 to the 0.1th power to get 1.084471771.

## 4 Take away 1

Take away 1 from the Step 3 result to find the annual rate of growth expressed as a decimal. In this example, you would take 1 away from 1.084471771 to find the annual rate of growth to be 0.084471771.

## 5 Change the annual rate

Change the annual rate of growth from a decimal to a percentage by multiplying it by 100. Completing the example, you would multiply 0.084471771 by 100 to find the annual growth rate to be about 8.447 percent.