Determining
your growth rate
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Training Page) Many people think that calculating the compound
annual growth rate is a series of complex equations and a
time consuming activity. However with Excel and the financial
functions such as the rate function, you no longer need to
worry yourself about the complexity of determining the compound
annual growth rate as Excel will work it out for you. Wit
the multitude of functions and features that Excel has to
offer, the time consuming days of frustrating financial work
are now reduced to mere hours. The way in which you
work out the compound annual growth rate with Excel is to use
the Rate function that is generally used to determine the
interest rate per period of annuity. However by adapting this
and only filling in some of the function arguments you will be
able to determine the compound annual growth rate over a period
of time.
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How to utilize the Rate function:
- Here is how you use the Rate function for the benefit of
determining the compound annual growth rate and without any
hassle.
- After entering a series of values for which you want to
determine the compound annual growth. Each of the values
represents the end of a period, these periods should be of equal
length in time for the calculation to be accurate.
- Select a cell in which you want the answer to reflect after
the calculation is complete, then from the Excel toolbar click the
fx button to activate the function wizard.
- Once the function wizard has been activated select
'Financial' from the categories and then from the list that
appears select the Rate function and click OK.
- With the Rate function you will be able to calculate the
compound annual growth rate of the values which you have entered.
After clicking OK a separate dialog box will appear which will be
named Function Arguments. Here you will have have various
parameters that have to be filled in:
- Nper: this is the total number of payment periods for the
loan or investment, for compound annual growth rate this will be
the number of periods for which you want to determine the growth
rate.
- Pmt: this is the payment that is made each period and cannot
change over the life of the loan or investment, you will not use
this variable when you are determining the compound annual growth
rate.
- Pv: this is the present value, it is the total amount that a
series of future payments is worth now, which is the value of the
initial period.
- Fv: this is the future value, if omitted Excel will assume
that Fv is equal to zero. However in the case of compound annual
growth rate calculations it will be the value of the last period
in a negative form. For example if the value is 18 000 you will
enter -18 000 or 1 and then click on the relative cell.
- Type: this is the last of the variables and can be omitted,
Excel will automatically substitute in a zero.
- Now click OK, the compound annual growth rate will
automatically appear on your spreadsheet.
It is always useful to do a proof test to ensure that the right
growth rate was achieved, although the values between the start and
end values might differ from the original values the end value
should be the same.
At Miricle Solutions the staff strive to provide Excel training
for financial situations that will benefit your company in various
ways. From the calculation of compound annual growth rate to net
present value and internal rate of returns Miricle Solutions has the
right training for you and your staff. Visit www.auditexcel.co.za
for more information and contact details. |
