What is a Growth Rate?

A growth rate is the percentage rate at which a variable is increasing. The rate is measured as a percentage of a baseline period. The growth rate is measured for a number of items on a regular basis, such as:

The growth rate of the economy as a whole
The growth rate of an industry
The growth rate of a company's sales
The growth rate of a company's profits
The growth rate of a company's dividends

A growth rate is used to measure the health of an economy, industry, or individual firm. It can also be used to extrapolate a growth rate forward into the future. However, growth rates are subject to many variables, so attempting a forward extrapolation of an existing growth rate may yield an incorrect figure.

Example of Growth Rate

As an example of growth rate, a company's sales have grown from $1,000,000 in the past year to $1,100,000 in the current year. This is a 10% growth rate. You might also be interested in the inflation rate during that period, since the inflation rate should be subtracted from the calculated growth rate. Thus, if the inflation rate were 2%, then the actual growth rate, net of inflation, would be 8%.