Growth rates as measures of financial performance

This teaching note provides a vehicle to help students understand, calculate, and communicate growth rates as part of the process of financial performance evaluation. The note also makes use of the graphic capabilities and functions available within Excel. Graphics are widely used by companies in their annual reports to highlight financial performance and to focus on change over time. Many companies also report 3, 5, and 10 year growth rates for selected financial data in their annual reports. Alternative approaches for calculating growth rates are presented with a focus on understanding the differences that can exist in the resulting calculated values. The underlying biases and the advantages of each approach are discussed. A project appropriate for classroom use in a Financial Accounting or Financial Statement Analysis course is included in an Appendix.