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Microsoft Excel: Calculate a Growth Rate

written by: Mr Excel•edited by: Michele McDonough•updated: 12/25/2010

Even though there may not be a predefined function in Excel that allows to calculate a growth rate, we can still use the application to solve these kinds of problems. Read on to find out how.

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    Annual Growth Rate

    The object of this Excel lesson is to explain how to use the spreadsheet application to find a compounded growth rate. One of the easiest ways to do this is use a working example, so we'll start out with the following scenario.

    Problem: You work for a fast growing company. In the first year, they had $970,000.00 in sales. In the fifth year, they had $6,175,000.00 in sales. What was the compounded annual growth rate?

    Now, we'll move on to showing how to solve this problem in Excel.

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    Using Excel to Determine Compounded Growth Rate

    Strategy: Sales in the fifth year are 6175/970 higher than the first year. The formula for growth is (year 5/year 1) – 100 percent. So, as shown in Fig. 443, the growth rate is 537 percent. (Click any of the images below for a larger view.)

    Fig. 443 - Basic Growth Rate 

    However, a compounded growth rate is a number, x, that will calculate out like this:

    Year 1 * (100% + x) *(100% + x) *(100% + x) * (100% + x)= Year 5

    This is the same as: Year 1 * (100% + x)^4 = Year 5

    So, in order to calculate x, you have to be able to find the fourth root of (Year5/Year1). The formula to find the fourth root is to raise the number to the (1/4) power. Thus, as shown in Fig. 444, the formula to calculate the compounded growth rate is:

    (Year 5/Year 1)^(1/4)–100% = x

    Fig. 444 Compounded Growth Rate 

    The compounded growth rate is 59 percent.

    Summary: Compounded growth rates are common calculations that require you to raise a number to a fractional power.

    For similar tips, see 91 Tips for Calculating with Microsoft Excel. Written by Bill Jelen (also known as Mr. Excel), this collections of short, easy tutorials shows how to solve a variety of different problems in Excel – ranging from common calculations to more complex scenarios.

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    Additional Resources

    Looking for more Microsoft Excel user guides? Be sure to browse through the other tutorials available at Bright Hub, including how to create various Excel charts and graphs and how to perform an Excel Pareto analysis. New and updated material is added on a regular basis, so bookmark us and check back often.

    If you're thinking about upgrading to Office 2010, you may also want to take a look at Bright Hub's collection of Microsoft Office 2010 user guides and other resources. Even if you decided to skip the Office 2007 upgrade and stick with an older version of Microsoft's office suite, Office 2010 has a few new features that just might be worth the wait. Learn what these new features are in addition to finding out how well the newest release of MS Office stacks up to its predecessors.