Debitoor's accounting dictionary
Growth rate

# Growth rate - What is a growth rate?

In business, a growth rate is the rate at which a business has grown (or diminished) within a certain period of time, usually calculated annually.

Growth rates can be calculated for many different variables such as net profit, revenues, sales, or investments. Each variable can show how different aspects of the business have been growing or diminishing over a period of time.

Growth rates are used to assess a company’s performance and profitability, and predict future trends.

## How to calculate growth rate

Growth rates are calculated as a percentage or a decimal. First, you need the original amount and new amount of the variable you are measuring, for the time frame you are calculating.

The equation for growth rate is:

(new value - old value) ÷ old value

## Growth rate examples

Let’s say you are measuring the net income of your business from the previous year. This is the amount of profit a business has earned after all expenses have been deducted.

In the year 2018, the business had a net income of £1,000. In the year 2019, the business had a net income of £1,800.

The growth rate would be calculated as:

(£1800 - £1000) ÷ 1000 = 0.8

In this example, the growth rate is 0.8, or 80%. Therefore, in 2019, the business increased its net income by 80%.

In another example, in the year 2018, a business had a net income of £5,000. In the year 2019, the business had a net income of £4,200.

The growth rate would be calculated as:

(£4200 - £5000) ÷ 4200 = -0.19

In this example, the growth rate is -0.19, or -19%. Therefore, in 2019, the business decreased its net income by 19%.

## Calculating growth rates with invoicing software

If your business uses invoicing software, you will have access to all of your company’s finances in one platform. You can find the variable you wish to calculate from your data, or from your accounting reports such as the balance sheet or profit and loss statement.

The balance sheet will show your assets, liabilities, and owners equity.

The profit and loss statement will show your revenue and losses.

You can easily find the amounts of the variable you are calculating from these two reports, and use the equation to calculate the growth rate. With Debitoor, you can use filters to find the exact data you require.