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 percentage change is a simple mathematical concept.
- Percentage change is used for many purposes in finance, most notably to track the price change of stocks and market indexes.
- It's also used to compare the values of different currencies.
- Percentage change can also be found in balance sheets with comparative financial statements.
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 individual securities and large market indexes and compare the values of different currencies.
If you want to calculate the percentage increase or decrease of several numbers, it's best to use the formula for calculating the percentage increase. Positive values indicate a percentage increase while negative values indicate a percentage decrease.
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 Q3 2020, Starbucks reported a 38% drop in net revenues over the same quarter in 2019 "due to adverse impact of COVID-19." By Q4 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.
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:
% Increase = Increase / Original Number × 100.
This gives you the total percentage change, or increase.
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.
% Decrease = Decrease / Original Number × 100
The result gives you the total percentage change, or decrease.
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?
Percentage change, like many other formulas used in finance, can be calculated using spreadsheets such as Microsoft's Excel.
To solve this calculation, 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:
10.5 / 35 = 0.3
Finally, to get the percentage, we multiply the answer by 100. This simply means moving the decimal place two columns to the right.
0.3 × 100 = 30
Grace's stock increased 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.