Jump to content
Sign in to follow this  
Bandit

How to calculate annualised growth

Recommended Posts

I wrote a piece on it here: https://www.offtopic.co.za/finance/how-to-calculate-annualised-growth

For added effect, here is a calculator: https://www.offtopic.co.za/finance/tools/annualised-growth-calculator

 

---------------------------

 

Going to Google Finance and querying your favourite ETF or share and seeing it grew by 150% over the last 10 years is awesome! Why? Because 150/10 is 15% growth on average every year, right? No... unfortunately not. The 150% over 10 years is compound growth. So how do you work it out?

 

Step 1: First, you need the end value of the stock (in cents). Let's say R25.00 which is 2500. 

 

Step 2: Then you need the starting value of the stock: R10,00 (or 1000).

 

Step 3: Get the year fractional value of 1/[years]. So in this example, it will be 1/10 or 0.1

 

Step 4: Subtract the starting value from the current value and divide that by the starting value:

 

(2500 - 1000)/1000 = 1.5 (this we'll call your return rate)

 

Step 5: Now add 1 to the return rate and raise it by the year fractional value (calculated in Step 3) and subtract 1 from the result:

 

((1.5+1)^0.1)-1

 

Simplified it reads: (2.5^0.1)-1

Simplified some more: (1.0959)-1

And the result: 0.0959 (your annualised growth percentage). 

 

If you struggle to read it, multiply the number by 100: 9,59%

 

 

In Summary: 

 

Let's use real data - STX40 between 2 Jan 2004 and 30 Dec 2016 (13 years):

 

Starting value: 960

End value: 4382

Year fraction: 1/13 = 0.077

 

(4382-960)/960 = 3.56

 

((3.56+1)^0.077)-1 = 0.1239

 

Annualised growth: 12.39%


IQ Test

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Restore formatting

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Sign in to follow this  

×
×
  • Create New...