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# How to show negative growth?

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

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1. ### 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/aNo 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

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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/aNo Ordinary Duck

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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.

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