Question

1. An EBIT grows from $130.5 M to $404.5 M in 5 years i/ what is its overall growth over the period? ii/ what is its CAGR (i.e. its Compound Annual Growth Rate, also called annualized growth rate)?
2. An EBIT declines from $130.5 M to $44.5 M in 5 years i/ what is its overall decline over the period? ii/ what is its CAGR?

Answer 1

i. The overall growth rate is compute by using the below formula:

( Present value - Past Value ) / Past Value

Present Value = $ 404.5 M

Past Value = $ 130.5 M

By feeding these values in the above mentioned formula we shall get:

= ( $ 404.5 M - $ 130.5 M ) / $ 130.5 M

= 2.10 or 210% Approximately

ii. The CAGR is computed by using the below formula:

= ( Present value / Past Value ) ^{1/ n} - 1

Present Value = $ 404.5 M

Past Value = $ 130.5 M

n = Number of years i.e. 5

By feeding these values in the above mentioned formula we shall get:

= ( $ 404.5 M / $ 130.5 M ) ^{1 / 5} - 1

= 0.2539 Approximately or 25.39 % Approximately

i. The overall growth rate is compute by using the below formula:

( Present value - Past Value ) / Past Value

Present Value = $ 44.5 M

Past Value = $ 130.5 M

By feeding these values in the above mentioned formula we shall get:

= ( $ 44.5 M - $ 130.5 M ) / $ 130.5 M

= - 0.659 or - 65.9 % Approximately

ii. The CAGR is computed by using the below formula:

= ( Present value / Past Value ) ^{1/ n} - 1

Present Value = $ 44.5 M

Past Value = $ 130.5 M

n = Number of years i.e. 5

By feeding these values in the above mentioned formula we shall get:

= ( $ 44.5 M / $ 130.5 M ) ^{1 / 5} - 1

= - 0.1936 or 19.36 % Approximately

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