Université Gaston Berger de St-Louis Année universitaire 2017-2018

U.F.R. SEG M. Ntab

Licence 2

About Growth Rates

Growth rates refer to the percentage change of a specific variable within a specific time
period and given a certain context. For investors, growth rates typically represent the
compounded annualized rate of growth of a company's revenues, earnings, dividends or
even macro concepts such as gross domestic product (GDP) and retail sales. Expected
forward-looking or trailing growth rates are two common kinds of growth rates used for
analysis.

At their most basic level, growth rates are used to express the annual change in a variable as
a percentage. An economy's growth rate, for example, is derived as the annual rate of
change at which a country's GDP increases or decreases. This rate of growth is used to
measure an economy's recession or expansion. If the income within a country declines for
two consecutive quarters, it is considered to be in a recession. Conversely, if the country has
a growth in income for two consecutive quarters, it is considered to be expanding.

Growth rates are utilized by analysts, investors and a company's management to assess a
firm's growth periodically and make predictions about future performance. Most often,
growth rates are calculated for a firm's earnings, sales or cash flow, but investors also look at
growth rates for other metrics, such as price-to-earnings ratios or book value, among others.
When public companies report quarterly earnings, the headline figures are typically earnings
and revenue, along with the growth rates (quarter over quarter or year over year) for each.

Amazon, for example, reported full-year revenue of $177.9 billion for 2017; this represented
growth of 30.8% from 2016 revenue of $136 billion. Amazon also reported that its earnings
totaled $3 billion in 2017, compared to $2.4 billion the prior year, so the firm's growth rate
for earnings on a year-over-year basis was 28%.

A compound annual growth rate (CAGR) is a specific type of growth rate used to measure an
investment's return or a company's performance. Its calculation assumes that growth is
steady over a specified period of time. CAGR is a widely used metric due to its simplicity and
flexibility, and many firms will use it to report and forecast earnings growth.

Specific industries also have growth rates. Each industry has a unique benchmark number for
rates of growth that its performance is measured against. For instance, companies on the
cutting edge of technology are more likely to have higher annual rates of growth compared
to a mature industry such as retail. Industry growth rates can be used as a point of
comparison for firms seeking to gauge their performance relative to their peers.
The use of historical growth rates is one of the simplest methods of estimating future growth
of an industry. However, historically high growth rates do not always indicate a high rate of
growth looking into the future as industrial and economic conditions change constantly and
are often cyclical. For example, the auto industry has higher rates of revenue growth during
periods of economic expansion, but in times of recession, consumers are more inclined to be
frugal and not spend disposable income on a new car.

In addition to GDP growth, retail sales growth is another important growth rate for an
economy because it can be representative of consumer confidence and customer spending
habits. When the economy is doing well and people are confident, they increase spending,
which is reflected in retail sales. When the economy is in a recession, people reduce
spending, and retail sales decline.

For example, second-quarter 2016 retail sales growth for Ireland was reported in July 2016,
revealing that domestic retail sales flatlined through the second quarter of the year. It is
believed that political instability within the country, combined with the results of the Brexit
vote in June 2016, caused Ireland's sales to stall. While some industries, such as agriculture
and garden, showed positive growth, other industries within the retail sector counteracted
that growth. Fashion and footwear had negative growth for the quarter.