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| Math Central | Quandaries & Queries |
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If a company had a net loss in 2005 of $11,234 and net income of $3231 in 2006, what is the percentage annual growth in income between the two years? |
The answer is about -129% but this is very likely to be misunderstood.
We do the same calculation as if we had more usual numbers, say a gain of $100 followed by a gain of $110. We normally use the earlier date as the "baseline"; so the answer is ($110-$100)/$100 = 1/10 converted to a percentage, or 10%.
In your question the answer is ($3231 - (-$11234))/(-$11234), or about -1.29 converted to a percentage.
In general, percentage changes are fairly intuitive when the ratio between the two numbers is fairly close to 1 (not -1 !) For situations deviating from this it is better not to use percentage notation.
-RD
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