How to calculate the annual growth rate in Excel? – Effective solution

When we talk about the study of characteristics of large populations we find that different statistical principles must be applied to analyze a small characteristic separately.

In addition, it must be taken into account that there are not few formulas used in this aspect to evaluate an aspect of the population, but there are a wide range that we must take into account.

Another important aspect is the way in which we will perform these calculations of large populations, due to the fact that performing all that manual process can take a significant amount of time that, in previous decades, could be problematic.

Nowadays, we have different office software capable of performing all this process without the need for us to know the calculations in depth or to rely on paper and pencil, making use of software such as Microsoft Excel.

Microsoft Excel is part of the office automation package offered by Microsoft which allows us to perform our accounts in an interface called spreadsheets composed of rows and columns in which we can perform operations such as subtraction with preset formulas, and many other kinds of formulas.

One of them, and quite important, is the annual growth rate, which is used by many economists to monitor the growth of a country, company or enterprise and here we explain how to do it.

What is the use of knowing the annual growth rate?

To understand the importance of this calculation we have to start with its definition, which is known as the positive change in percentage of a variable between two points in time.

This simply means that it measures the evolution of the value of an aspect, such as the number of children born, over a certain period of time, which can be imported or exported in graphs.

This is important because, as mentioned before, it is used in various aspects of the economy, either to see how the trend curve develops in the gross domestic product, infant birth rate, mortality and other sectors that you probably did not know that depend on this important formula.

For the application of these we must take into account 2 types of formulas with which we will be able to work. They are the following:

Average annual growth rate.

This formula consists of the percentage that expresses the change that a variable has undergone between two dates that can vary.

Compound annual growth rate

This formula defines the average accumulated variation in percentage for a sub period of time between two dates. The preferential use of one formula or the other will depend entirely on the amount of time to be visualized.

For long-term studies it will be preferable to use the compound annual growth rate, while for shorter periods it is better to use the average growth rate.

What functions allow me to know the annual growth rate in Excel?

As stated at the beginning of this article, calculating these growth rates means handling an incredible amount of data that must be organized, cleaned, processed and displayed in an orderly fashion. So if they are duplicated, they have to be eliminated, being necessary Excel for such work.

Excel within its formulas allows us to calculate the compound annual growth rate through the IRR function where it will only be necessary to place in the first argument the table to analyze, in the second argument the start date and in the last argument the closing date.

On the other hand, to calculate the average growth rate it will be necessary to apply manual methods, for this we will only have to have the table to which we want to make the calculation, add a third column where we will place the following formula in the second cell: = (C4-C3) / C3.

After this, we will drag the calculation throughout the table and then average all the data generated with the AVERAGE function, which would give the end of the calculation. For more information consult Microsoft support.

What is the correct way to interpret the annual growth rate data?

Once the result of the calculation of these rates is obtained, the important question is how to interpret it. The answer is that it is not possible to make a precise analysis with only one result, since it will be necessary to have a history of growth or at least the rate of the previous period, with which it will be possible to make the comparison and obtain if there was a greater or lesser growth.

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