How to Calculate Cumulative Growth

Cumulative growth is a term used to describe a percentage of increase over a set period of time. Cumulative growth can be used to measure growth in the past and, thereby, to plan for population growth, estimate organic cell growth, measure sales growth, and so on. It assumes some variables that are not certain, such as a rise and fall in interest rates, regional birth rates, or economic inflation or deflation. However, it is a useful descriptive tool in figuring out how a growth might change positively or negatively. Calculating cumulative growth may begin with determining the growth rate in the past before you apply it to future growth, so there are actually two calculations. Because it is used most frequently in relationship to business and investments, investors, marketers, and business planners need to know how to calculate cumulative growth.

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 Steps

Calculate the Compound Annual Growth Rate (CAGR) in order to determine the percentage rate at which your subject has grown in the past.

    1
    Identify the values under review:
        Determine the starting value (SV) of an asset, for example, the price paid for a share of stock.
        Determine the finishing value (FV) or current market value of that asset.
        Determine the period of time (T) you want to study, for example, the number of years, months, quarters, etc.
    2
    Use these values in this formula: CAGR = ((EV/SV) ^ (1/T)) -1
        A variation on this formula is as follows: CAGR = (FV - SV)/SV * 100
        Understand that this CAGR is a "smoothed" or "rounded" rate; that is, it has been consistent only if you assume there has been a more or less consistent economic history.

Use CAGR to predict cumulative growth.

    1
    Determine your data values in an effort to foresee the final value (FV):
        Identify the starting value (SV), the current market value of an asset.
        Determine the period of time (T) you want to study, for example, the number of years, months, quarters, etc.
        Apply the CAGR (R) percentage as a decimal.
    2
    Calculate FV = SV (1 + R) ^ T.

 Tips

    Calculations can be completed on spreadsheet software, and you might consider completing the data for a scatter graph into which you plug a "trending" because the CAGR is closely comparable to that trending.
    It is in the nature of the math that the longer period of time studied will produce the more "accurate" outcome.

Things You'll Need

    Calculator
    Computer software capable of spreadsheets, graphs, and formulas