What Is Percentage Change?
Percentage change is used for many purposes in finance, often to represent the price change of a stock over time, expressed as a percentage. The formula used to calculate this change as a percentage is a simple mathematical concept that varies slightly depending on whether the change is an increase or a decrease.
Read on to learn how to calculate percentage change.
- Percentage change is used for many purposes in finance, most notably to track the price change of stocks and market indexes.
- Change as a percentage is also used to compare the values of different currencies.
- Percentage change also can be found in balance sheets with comparative financial statements.
- How to calculate percentage change differs slightly depending on whether it is an increase or a decrease.
Understanding Percentage Change
Percentage change can be applied to any quantity that you measure over time. In finance, the percentage change formula is often used to track the prices of both large market indexes and individual securities and compare the values of different currencies.
Balance sheets with comparative financial statements will generally include the prices of specific assets at different points in time along with the percentage changes over the accompanying time periods. For example, a company might use percentage change to illustrate revenue growth year over year (YOY) in its balance sheet.
Companies use percentage change to track and report trends in their revenues or profits. For instance, for the third quarter of 2020, Starbucks reported a 38% drop in net revenues over the same quarter in 2019 “due to adverse impact of COVID-19.” By the fourth quarter of 2020, despite store closures and reduced hours, net revenues were down 8% from the prior year. Subsequent quarterly reports show the slow recovery of Starbucks revenues—and positive percentage changes in net revenues—as the business disruptions caused by COVID-19 diminished.
Percentage change, like many other formulas used in finance, can be calculated using spreadsheets, such as Microsoft Excel or Google Sheets.
Formula and Calculation of Percentage Change
To calculate a percentage increase, first work out the difference (increase) between the two numbers you are comparing:
Increase=New Number−Original Number
Next, divide the increase by the original number and multiply the answer by 100:
Percentage Increase=(Original NumberIncrease)×100.
This expresses the change as a percentage—i.e., the percentage change.
To calculate a percentage decrease, first work out the difference (decrease) between the two numbers you are comparing.
Decrease=Original Number−New Number
Next, divide the decrease by the original number and multiply the answer by 100.
Percentage Decrease=(Original NumberDecrease)×100
The result expresses the change as a percentage—i.e., the percentage change.
If you only want to remember one formula, use the one for a positive increase. If you do, the result will be either positive or negative (if you use both formulas, the result is always positive), and that will tell you whether the percentage change is an increase (positive) or a decrease (negative).
Example of Calculating Percentage Change
As an example of calculating percentage change, consider Grace, who bought shares of a stock at $35 per share on Jan. 1. On Feb. 1, the stock was worth $45.50 per share. By what percentage did Grace’s share value increase?
To answer this question, first calculate the difference in price between the new and old numbers. $45.50 - $35 = $10.50 more. To work out the increase as a percentage, divide the increase by the original (January) number:
Finally, to get the percentage, we multiply the answer by 100. This simply means moving the decimal place two columns to the right.
Grace’s stock increased by 30%.
How Do I Calculate Percentage Change?
If you are tracking a particular stock’s price increase, use the formula (New Price - Old Price)/Old Price and then multiply that number by 100. If the price decreased, use the formula (Old Price - New Price)/Old Price and multiply that number by 100.
What Is a Balance Sheet?
How Is Percentage Change Used in Finance?
Percentage change is often used in finance to track the value increase or decrease of a stock or large market indexes over time. It is also used to compare the values of different currencies.
Companies also use percentage change in balance sheets to provide a comparative view of assets over different quarters or years. And they use percentage change in quarterly reports to report trends in their revenues over the same quarter in the prior year.
The Bottom Line
Percentage change is used to track the change in a number over time. That number can be anything from the price of a stock to the amount of money made by a business. It is often used on a company’s balance sheet to offer a quick indication of how performance has improved or declined from year to year or from yearly quarter to the same yearly quarter. It is also used to compare values among different currencies.
There are two formulas that express change as a percentage, one for an increase and one for a decrease, both of which will result in a positive number. You can also just use the formula for an increase. If you do, a positive result will indicate an increase, while a negative result will mean a decrease.