How is the average growth rate calculated?

Suzi
2015-08-21 17:25

The average growth rate is calculated by determining the ‘least squares’ regression line of best fit using the natural log (LN) of the company data. The growth rate is the slope of that line.

If you'd like to try this yourself here are a couple of reference websites:

http://www.clemson.edu/ces/phoenix/tutorials/excel/regression.html

http://www.tc3.edu/instruct/sbrown/stat/leastsq.htm

The 'y' values in the regression calculation must be the natural log of the company data. For example, ln(revenueforyear2012). To obtain the growth rate, exponential function must be applied to the slope of the resulting equation. For example, exp(slope).

The value can also be replicated by using the Excel LOGEST() function on the original data.

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