Growth Rates Definition
Growth rates are defined as the percent change in a variable over a specific period of time. The most common growth rate is the annual growth rate, which is simply the percentage change in a variable over the course of one year. However, growth rates can be calculated for any length of time, from one day to multiple years.
There are two types of growth rates: absolute and relative. Absolute growth rates are simply the raw percentage change in a variable, while relative growth rates account for changes in the base value of the variable. For example, if a company’s sales grow by 5% from $1 million to $1.05 million, its absolute growth rate is 5%. However, if that same company’s sales grew by 5% from $10 million to $10.5 million, its relative growth rate would be much higher, at 50%.
Growth rates are important because they provide insight into how an economy or a company is performing. They can be used to compare different periods of time or different countries/regions/companies. For example, comparing the economic growth rates of different countries can give insights into which countries are doing well and which ones are struggling. Comparing the sales growth rate of two companies can give insights into which company is growing faster and which one may be in trouble.
