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How to show negative growth?

Discussion in 'Beginner's Lounge' started by luutzu, Nov 5, 2014.

  1. luutzu

    luutzu

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    Hi guys,

    Is there a way to show negative growth in a more intuitive way than the normal (straight line) growth rate formula?

    Say Company C earn $100 last year, this year it earns -$200, then next year it earns further -$300.

    with Growth Rate = [(Present Value - Past Value)/Past Value]x100

    we get growth from last year as = [(-200 - 100)/100] x 100 = -300%.

    then next year, we get growth = [(-300 - -200)/-200] x 100 = [(-300 + 200)/-200] x 100
    = (-100/-200)x100 = positive 50%


    So if we look at the positive 50% growth next year, it really is a further decline in earnings, but mathematically it's a gain - just a further gain on a loss.

    So on a chart it could be misleading.

    I think the maths above is right, just we need to take into consideration the previous year's figure to have some context on the growth figure - that it could be a growth on a loss. i.e. further losses.


    Is there a way to show the above more intuitively?

    thanks
     
  2. tech/a

    tech/a No Ordinary Duck

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    A 50% gain on a loss is still an increase in a loss.
    50% growth on a loss is an increase in loss.

    Creative accounting.
    I've had a few companies liquidate on me with similar logic!
     
  3. luutzu

    luutzu

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    Thanks tech/a... yea, was looking at my chart and see positive growth when there's a year on year loss. Thought my formula was wrong but seems to be right.

    Yea, it grow, just grow in the wrong direction. So a year on year growth chart could be misleading in and of itself... A compounded or linear growth in combination should clarify it.

    Thanks.
     
  4. tech/a

    tech/a No Ordinary Duck

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    Yes I see your point.

    You get this a lot with .com companies.
    Where I guess potential---real or not is factored in.
    Same happens with small miners---explorers---biotech co's.
     
  5. luutzu

    luutzu

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    Yea, don't like potentials. I have the potential to make billions, but here I am. haha

    Was looking at Transpacific from 2008 to 2010... not a pretty picture.
     
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