Calculating market growth rates

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Sean Haffey - 20 Dec 2005 14:56 GMT

I have a lot of quarterly data for market size. I am trying to find out how
I can calculate the average growth rate for this market. For example, if I
know

- $10m was the initial market size
- $100m was the final market size
- it took six quarters to grow from $10m to $100m

Then what was the growth rate? I am feeling very silly because I used to be
able to work this out years ago but I've forgotten the formula and I couldn't
find what I wanted in Excel help.

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vezerid - 20 Dec 2005 17:12 GMT

Sean,
how does this market grow? A linear trend would mean that the market
grows by more-or-less the same amount of $$ per quarter.
If so, then the average growth rate per quarter is computed by
(100-10)/6

HTH
Kostis Vezerides

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Sean Haffey - 20 Dec 2005 17:26 GMT

Unfortunately, these are not linear markets. (Not at this stage, anyway).
What I am looking for is a way of calculating the Compound Annual Growth
Rate. But I can't recall how to calculate this or find anything is Help that
refers to CAGR. I know that it isn't a difficult calculation - although not
as simple as yours! - but I am exasperated that I can't remember how to do it.

But thanks anyway for taking the time to reply.

> Sean,
> how does this market grow? A linear trend would mean that the market
[quoted text clipped - 4 lines]
> HTH
> Kostis Vezerides

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vezerid - 20 Dec 2005 17:48 GMT

OK, we are talking exponential.
100 = 10*(1+r)^6 =>
r = (100/10)^(1/6) - 1

HTH
Kostis Vezerides

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joeu2004@hotmail.com - 20 Dec 2005 20:58 GMT

> - $10m was the initial market size
> - $100m was the final market size
> - it took six quarters to grow from $10m to $100m
> Then what was the growth rate?

=RATE(6,, -10, 100)

That is the average __quarterly__ rate.

If you want the effective __annual__ rate, ostensibly,
it might be:

=FV(RATE(6,, -10, 100), 4,, -1) - 1

which is the same as (1 + r)^4 - 1, where "r" is the
quarterly rate, however you want to compute it.

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joeu2004@hotmail.com - 21 Dec 2005 01:12 GMT

Embellishment ....

I wrote:

> =RATE(6,, -10, 100)
> That is the average __quarterly__ rate.

I should have noted that that is the same as
(100/10)^(1/6) - 1.

> If you want the effective __annual__ rate, ostensibly,
> it might be:
> =FV(RATE(6,, -10, 100), 4,, -1) - 1

I should have written "it __is__", not "ostensibly it might
be". I was thinking of how financial engineers annualize
the std dev, not the average.

Also, I might have noted that the above FV() function
can be simplified to:

=RATE(6/4,, -10, 100)

> which is the same as (1 + r)^4 - 1, where "r" is the
> quarterly rate, however you want to compute it.

.... Which, in your case, can be simplified to:

(100/10)^(4/6) - 1

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