Calculate The Geometric Average Rate Of Growth In Revenue ✓ Solved

Calculate the Geometric average rate of growth in Revenue for company

Determine the compound annual growth rate (CAGR) in revenue over the period from 2019 to 2023, based on the revenue figures provided for each year. The calculation involves identifying the initial and final revenue values and applying the CAGR formula:

Formula: CAGR = (Ending Value / Beginning Value)^(1 / Number of Years) - 1

Sample Paper For Above instruction

Introduction

This paper aims to analyze a series of financial data, focusing on calculating the geometric average growth rate of revenue for the company over a specified period. The purpose is to understand the company's revenue growth trend, which is crucial for financial forecasting and valuation.

Data Examination

The revenue figures provided from the exhibits span from 2019 to 2023, with the following data:

  • 2019: $43,218 million
  • 2020: $46,061 million
  • 2021: $48,607 million
  • 2022: $47,142 million
  • 2023: $49,161 million

Note: The latest year is 2023, but since the calculation is for the growth rate from 2019, the initial and final values are 2019 and 2023 respectively.

Calculating the Compound Annual Growth Rate (CAGR)

The CAGR relates the initial revenue to the final revenue over the period and provides an annualized growth rate. Using the data, the calculation proceeds as follows:

Starting point (2019): $43,218 million

Ending point (2023): $49,161 million

Number of years: 2023 - 2019 = 4 years

Applying the formula:

CAGR = (49,161 / 43,218)^(1/4) - 1


= (1.1379)^(0.25) - 1


= 1.0327 - 1


= 0.0327 or 3.27%

The geometric average growth rate of revenue for the company over the four-year period is approximately 3.27% per year.

Implications of Revenue Growth

Understanding this growth rate assists investors and management in forecasting future revenues and making strategic decisions. It indicates a moderate growth trend, suggesting stable expansion within the company's core markets.

Conclusion

The calculated CAGR of 3.27% provides an essential metric for evaluating the company's historical revenue performance, serving as a foundation for future financial modeling and valuation processes.

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