Absolute growth is calculated by subtracting the initial value from the final value. In simpler terms, it's the difference between the new value and the old value.
Here's the formula:
Absolute Growth = New Value - Original Value
This calculation provides the raw increase or decrease in a quantity over a specific period.
Example:
Let's say a company's revenue was $100,000 last year, and this year it's $150,000.
Absolute Growth = $150,000 - $100,000 = $50,000
Therefore, the absolute growth in revenue is $50,000.
Absolute Growth vs. Growth Rate:
While absolute growth tells you the numerical change, the growth rate provides a percentage reflecting the proportional change relative to the original value.
To calculate growth rate:
*Growth Rate = (Absolute Growth / Original Value) 100**
Using the previous example:
Growth Rate = ($50,000 / $100,000) * 100 = 50%
So, while the absolute growth was $50,000, the growth rate was 50%. This means the company's revenue increased by 50% compared to the previous year.
When to Use Absolute Growth:
Absolute growth is useful for:
- Understanding the actual magnitude of change.
- Comparing growth across different entities with similar starting values.
However, when comparing growth across entities with significantly different starting values, growth rate provides a more meaningful comparison.
