Table of Contents
- What Is Percentage Change?
- How Percentage Changes Work
- Starbucks Financial Results
- Fast Fact
- Formula and Calculation of Percentage Change
- Tip
- Uses of Percentage Change
- Example of Calculating Percentage Change
- How Do I Calculate Percent Change?
- What Is a Balance Sheet, and How Does It Relate to Percentage Changes?
- How Is Percentage Change Used in Finance?
- The Bottom Line
What Is Percentage Change?
A percentage change represents the relative change in the value of an item. Let me explain: percentage change is a calculation you use to assess the relative performance of a stock or other investment over a certain period.
As an investor, you commonly review the percentage change of your portfolio compared to the percentage change of similar investments over the same timeframe.
You can also use percentage change to assess the change in the financial value of any item—from the increase in the price of eggs from one month to the next, to how much a car costs today compared to what it cost a year ago.
Key Takeaways
- To find the percentage change of a security, subtract the previous price from the current price, divide the result by the earlier price, and multiply by 100.
- Businesses use percentage change to analyze revenue growth year over year.
- Monitoring percentage changes over time helps you determine if your portfolios need rebalancing.
- Percentage change is useful for assessing the change in value of many things, in addition to investments.
How Percentage Changes Work
You can calculate percentage changes for a variety of variables for any items that you wish to measure over time.
For example, you might be interested in the percentage change in the amount of rainfall in your area from season to season. Or if you're a baseball fan, you might want to keep track of the percentage change in the number of home runs that your favorite team hits yearly.
In finance, percentage change is often used to track the prices of large market indexes like the S&P 500 and Dow Jones Industrial Average (DJIA) and individual securities. It's also helpful when comparing the fluctuating values of different nations' currencies.
Percentage change is also a widely used metric in business, such as when a company illustrates its revenue growth year over year (YOY) in its balance sheet.
Starbucks Financial Results
Often, if there is a significant percentage change, the company will try to explain why. For example, for the third quarter of 2020, Starbucks reported a 38% drop in net revenues over the same quarter in 2019 due to the adverse impact of COVID-19.
Subsequent quarterly reports showed the gradual recovery of Starbucks' revenues and positive percentage changes in net revenues, as the business disruptions caused by COVID-19 diminished.
Moving on, Starbucks' 2024 announcement of Q4 and full fiscal year 2024 results noted total net revenues for the 2024 and 2023 fiscal years as $36.2 billion and $35.98 billion, respectively. The increase year-over-year was a positive percentage change of 0.6%.
Fast Fact
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 determine 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 = (Increase / Original Number) × 100. This expresses the change as a percentage—i.e., the percentage change.
Similarly, to calculate a percentage decrease, determine 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 = (Decrease / Original Number) × 100. Again, the result expresses the change as a percentage—i.e., the percentage change.
Tip
If you only want to remember one formula, use the one for a positive increase. The result will be either positive or negative (if you use both formulas, the result is always positive). That will tell you whether the percentage change is an increase (positive) or a decrease (negative).
Uses of Percentage Change
Investors, companies, and entire industries can benefit from analyzing how prices or other measures rise or fall from one period to the next.
Here are some ways you can use percentage change calculations to your advantage: Measure individual investment returns—the return on investment (ROI) for various assets, such as stocks, bonds, or mutual funds, is expressed in terms of percentage changes. This helps you evaluate the performance of your assets over a particular time frame and compare them to other possible investments.
Evaluate portfolios: In addition to computing the percentage changes of individual assets within a portfolio, you can compute the change for your entire portfolio. This can be useful in determining whether your current asset allocation is delivering the returns you need or whether you should consider rebalancing.
Analyze price movements: Percentage changes in the prices of stocks, commodities, or other financial instruments can also help identify trends, volatility, and potential trading opportunities.
Compare against benchmarks: You can check the percentage changes in your investments against the percentage changes in a corresponding stock index or other benchmark to see whether your holdings are outperforming or underperforming the market. If they are significantly underperforming the benchmark, you should find out why.
Manage risk: If you use stop-loss orders to protect yourself from steep declines in the value of an investment, you can set your targets based on percentage changes.
Example of Calculating Percentage Change
Consider Grace, who bought shares of a stock at $35 per share on January 1 of last year. A year later, the stock was worth $45.50 per share. By what percentage did Grace's share value increase?
To answer this question, first calculate the increase in price between the new and old numbers: $45.50 - $35 = $10.50. Then divide the increase by the original price: 10.5 / 35 = 0.3.
Finally, to get the percentage, multiply the answer by 100 (or simply move the decimal point two spaces to the right): 0.3 × 100 = 30. Grace's stock increased by 30%.
How Do I Calculate Percent Change?
If you are tracking a price increase, use the formula: (New Price - Old Price) ÷ Old Price, and then multiply that number by 100. Conversely, if the price decreased, use the formula (Old Price - New Price) ÷ Old Price and multiply that number by 100.
What Is a Balance Sheet, and How Does It Relate to Percentage Changes?
A balance sheet is a financial statement that companies use to report assets, liabilities, and shareholder equity. Balance sheets provide a snapshot of a company's finances for a specific period, such as a quarter or a fiscal year. Many companies choose to analyze their balance sheet by examining the percentage change in specific account balances from one period to the next. For example, a company can check its immediate liquidity trend by examining the percentage change in cash on hand for the last several years.
How Is Percentage Change Used in Finance?
Percentage change is often used by investors to track the increase or decrease in the value of a security over time and then to compare that against the performance of a relevant index. It is also used to compare the changing values of different national currencies as well as to measure the appreciation of physical assets like real estate.
The Bottom Line
Percentage change is a simple calculation with many uses in finance and business.
If you want a quick read on how a particular investment of yours is performing, compare its percentage change in value for the past several years to discern a trend upward or downward.
In addition, you can compare it to that of similar investments, such as a benchmark index.
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