The Formula for Percentage Change Calculation (Table of Contents)
What is the Percentage Change Formula?
Percentage Change can be defined as a % change in value due to changes in the old number and new number. Values can either increase or decrease and so % change can be a positive value (+) or a negative value (-).
Percentage Change Formula
Change in sale in comparison to the previous year, change in account balance on the last day of year and change in profit, change in price, and change in ratio in comparison to previous years.
Explanation of Percentage Change Formula
The percentage change equation is the first step or base for various analyses. Most popularly percentage change formula used in analyzing the direction of changes. This analyzing process is also known as trend analysis. Trend analysis is used in almost all organizations to evaluate the performance of an organization by analyzing their financial information.
A percentage change equation is a great tool for comparison. 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 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 percentage change formula has to be used carefully. 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 formula has to be interpreted vice-versa to interpretation explained above.
Examples of Percentage Change Formula (with Excel Template)
Let’s see some simple to advanced practical examples of the percentage change equation to understand it better.
Company XYZ in the first year after its incorporation made a profit of $ 15 million and in next year its profits increased to 16.5 million. What is the percentage change in its profits?
Use below given data for the calculation of percentage change.
Calculation of percentage change can be done as follows-
Percentage Change will be –
- = -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 percentage change formula:
Use below given data for the calculation of percentage change.
Calculation of percentage change in a sale can be done as follows-
Percentage Change in a Sale will be –
- = 9.59 % decrease in sale
Now we will calculate the % change in profit:
Calculation of percentage change in a profit can be done as follows-
- = ($175,500-$294,944)/ $175,500 *100%
Percentage Change in a Profit will be –
- = ($175500-$294944)/$175500
- = -68.06% or can be interpreted as a 68.06% increase in profits.
Taking another example to understand the use of percentage change formula in cost analysis. 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. Use percentage change formula to find out % change in employee cost due to change in no of employees.
Use below given data for calculation of percentage change in no of employees.
Calculation of percentage change in no of employees can be done as follows-
Percentage Change in Employees will be –
- =16.67% or 16.67% decrease in no. of employees
Use below given data for calculation of percentage change in the employee cost.
Calculation of percentage change in employee cost can be done as follows-
Percentage Change in Employee Cost will be –
= 0.5% increase in employee cost.
Relevance and Use of Percentage Change Formula
Percentage change formula in excel is an important tool to give clarity of thought about the direction of changes. 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. This quick analyzing ability is provided by percentage change formula in excel.
Percentage Change Formula Calculator
You can use these percentage change equation calculator
|Percentage Change Formula =||
Trend Analysis Formula in Excel
Trend analysis is a mathematical tool used by organizations and professionals to evaluate the values/information of financial statements. Trend analysis gives a quick picture of organization performance over a period of time. Trend analysis used by other professionals such as auditors, bankers and as well as by investors to make their investment decision. An example will help us to understand the percentage change formula in excel more clearly:
For example, extracts of profit and loss statement of an organization shows the following figures:
Now taking the year 2014 as the base year we will calculate percentage change in the sale, stock and profit of an organization to understand the trend of organization growth.
The below-mentioned table provides a detailed calculation of changes in figures of sale, stock, and profit:
Percentage Change in the Sale, Stock, and Profit will be –
The above table shows that during the period of six years company sales have grown for more than double. But a quick look at profit increase shows that company profit has increased at an even higher rate. This shows that the company is growing with a good rhythm. This trend analysis gives a broader picture of the company’s performance since the rate of increase in profit is much higher than the rate of increase in sales. There might be several reasons for such trends, one of them could be better control of expenses over a period of time.
This has been a guide to the Percentage Change Formula. Here we provide step by step calculation of percentage change along with practical examples and downloadable excel template. You can learn more about accounting and budgeting from the following articles –