Enter the present value, future value, and the number of periods into the calculator to determine the implied growth rate. This calculator helps in understanding the annual growth rate that is implied by the current and future values over a certain period of time.
Implied Growth Rate Formula
The following formula is used to calculate the implied growth rate:
IGR = ((FV / PV)^(1 / N) - 1) * 100
Variables:
- IGR is the implied growth rate (%)
- FV is the future value ($)
- PV is the present value ($)
- N is the number of periods (years)
To calculate the implied growth rate, divide the future value by the present value, raise the result to the power of the reciprocal of the number of periods, subtract one from this result, and then multiply by 100 to convert to a percentage.
What is an Implied Growth Rate?
The implied growth rate is a measure of the annual growth rate that is suggested by the present and future values of an investment or project over a specific period of time. It is a useful metric for investors and analysts to estimate the growth of a company’s earnings, revenues, or other financial metrics, assuming a constant rate of growth over the period in question.
How to Calculate Implied Growth Rate?
The following steps outline how to calculate the Implied Growth Rate.
- First, determine the present value (PV) of the investment or project.
- Next, determine the future value (FV) of the investment or project.
- Next, determine the number of periods (N) over which the growth is occurring.
- Next, gather the formula from above = IGR = ((FV / PV)^(1 / N) – 1) * 100.
- Finally, calculate the Implied Growth Rate (IGR) in percentage.
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem:
Use the following variables as an example problem to test your knowledge.
Present value (PV) = $1,000
Future value (FV) = $2,000
Number of periods (N) = 8 years
