Growth rate = (sales in most recent quarter / sales in same quarter a
year ago) – 1
Pfizer example: ($12,973 / $13,968) – 1 = –0.071 = –7%
For Pfizer, that calculation yields a growth rate of negative 7%, meaning
that sales fell. Repeat this step for your remaining data from the last quarter
as well as the trailing 12 months to come up with trailing 12-month growth.
Annualized growth rates break down long-term growth into one-year
chunks. Suppose a stock generated $500 million in sales in 2002 and $740
million in 2012. Those numbers equate to annualized growth of 4% over the
10-year period. If you start with sales of $500 million in 2002 and increase
them by 4% each year, by 2012 sales will have grown to $740 million. Of
course, operating results don’t move in a straight line. Don’t assume that a
stock with 4% annualized sales growth actually grew its sales by 4% each
year. The numbers certainly varied from year to year. However, given sales
for two periods more than a year apart, calculating annualized growth rates
can give you a sense of a company’s overall trajectory.
To calculate, start by dividing sales in the most recent year by sales four
years ago. Next, raise that number to the power of 0.25, or one-fourth. Last,
subtract one. With Pfizer, this equation reveals an annualized growth rate of
5%.
Equation Of Growth Rate.
