Formula to Calculate Percentage Change
Percentage Change can be defined as a % change in value due to changes in the old number and new number and the values can either increase or decrease and so the change can be a positive value (+) or a negative value (-).
Looking at the simplicity of this formula, the outcome of this formula must be interpreted correctly. Its outcome can be two types of values:
Even though the outcome is positive, it cannot be interpreted as favorable results. It depends on the input we used in the formula. For example, we used this formula in a cost comparison of two years. If the outcome is positive, then the results are favorable. But on the other hand, if the outcome of a sale comparison is positive, then the result cannot be said favorably.
Prima facie negative values cannot be said unfavorable results every time. If we desire an increase in the value of a particulars item, a negative outcome of comparison cannot be said unfavorable results.
The formula has to be used carefully. The position of the old value and a new value can be interchanged as follows:
New Number – Old Number/Old Number * 100
But the outcome of this equation has to be interpreted vice-versa to interpretation explained above.
Company XYZ, in the first year after its incorporation, made a profit of $ 15 million, and in the next year its profits increased to 16.5 million. What is the percentage change in its profits?
Use below given data for the calculation.
- Old Number: 15
- New Number: 16.5
A calculation can be done as follows-
- = -10%
It can be interpreted as value has increased by 10% from the old number.
Now let us take an example of an organization analyzing its financial statements of the current year and comparing its figures with previous year figures. Its profit and loss statement for the current year shows a sale of $ 4,950,000, and profit appear to be $294,944. However, its sale in the previous year was $5,475,000 and a profit of $ 175,500. What is the percentage increase or decrease in organization profit and sales?
First of all, we will calculate % change in a sale by applying the formula:
Use below given data for the calculation.
- Old Number (Current Year Sale): $5,475,000
- New number (Previous Year Sale): $4,950,000
Calculation of change in a sale can be done as follows-
- = 9.59 % decrease in sale
Now we will calculate the % change in profit:
- Old Number (Current Year Sale): $175,500
- New number (Previous Year Sale): $294,944
Calculation of percentage change in a profit can be done as follows-
- = ($175,500-$294,944)/ $175,500 *100%
- = ($175500-$294944)/$175500
- = -68.06% or can be interpreted as a 68.06% increase in profits.
A startup firm had 30 employees last year, and the total cost of its human resource was $ 196,500. To reduce its employee cost, the company decided to remove 5 employees who are highly inefficient. Now at the end of the year, while analyzing savings in its employee’s cost, it found the total employee cost is $ 195,500. Find out % change in employee cost due to change in no of employees.
Use below given data for calculation
- Old Number: 30
- New Number: 25
Calculation of percentage change in no of employees can be done as follows-
- =16.67% or 16.67% decrease in no. of employees
Use below given data for calculation of the change in the employee cost.
- Old Number: 196500
- New Number: 195500
= 0.5% increase in employee cost.
Relevance and Use
Percentage change is an important tool to give clarity of thought about the direction. Either change is moving in a favorable direction, or do we need to change our strategies to bring changes as per our goals and objectives. As shown in both of the above examples, changes in the first example are favorable but changes in the second example were not favorable in the first example. Even though the firm sales was decreased by 9.59% but company profit has increased by 68.06%.
It shows that changes adopted by the organization resulted in a favorable outcome. But is the second example, even though the company has removed its 5 employees still its employee cost has increased by 0.5%. It gives them clarity of thought that something wrong is happening in the organization.
Percentage Change Calculator
You can use this calculator
|Percentage Change Formula =||
This has been a guide to the Percentage Change Formula. Here we provide step by step calculation of % change along with practical examples and a downloadable excel template. You can learn more about accounting and budgeting from the following articles –