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CandleFocus Glossary Editor
Percentage change is a simple concept that is used in a variety of financial settings, such as tracking stock and currency prices. It can also be used to compare two different financial statements, such as balance sheets. By understanding the calculation and how to interpret it, percentage change can become an valuable asset for making well-informed financial decisions.
At its core, percentage change is a comparison between two numbers. It takes the original number and subtracts the new one to calculate the difference. This difference is then converted into a percentage by dividing it by the original amount and multiplying it by 100.
To apply this formula and understand the implications, let's look at a simple example. Say your favorite stock was worth $10 a share at the beginning of the year, and it rose to $12 by the end of the year. To calculate the percentage change, first subtract the new value from the old, which gives $2. Then, divide $2 by the original amount ($10) and multiply it by 100. The answer, in this case, is 20%.
In other words, the stock gained 20% in value in one year. Therefore, if you had bought the stock at the beginning of the year, you would have made a 20% profit.
Conversely, if the stock had decreased in value, the equation is the same - except you would subtract the new value from the old. For example, if the stock had been worth $10 at the beginning of the year and dropped to $8 by the end of the year, the percentage change would be -20%. This indicates that the stock dropped 20% in value, meaning that if you had purchased it, you would have lost 20%.
These basic calculations can be applied to other situations, such as comparing the balance sheets of two different years to determine the growth or decline of a business. This information can be used to anticipate shifts in the market or recognize which investments are already in decline.
By understanding how to calculate percentage change, investors can make meaningful judgments about the performance of different investments over time. It is a simple yet important tool that enables individuals to make smart financial decisions.
At its core, percentage change is a comparison between two numbers. It takes the original number and subtracts the new one to calculate the difference. This difference is then converted into a percentage by dividing it by the original amount and multiplying it by 100.
To apply this formula and understand the implications, let's look at a simple example. Say your favorite stock was worth $10 a share at the beginning of the year, and it rose to $12 by the end of the year. To calculate the percentage change, first subtract the new value from the old, which gives $2. Then, divide $2 by the original amount ($10) and multiply it by 100. The answer, in this case, is 20%.
In other words, the stock gained 20% in value in one year. Therefore, if you had bought the stock at the beginning of the year, you would have made a 20% profit.
Conversely, if the stock had decreased in value, the equation is the same - except you would subtract the new value from the old. For example, if the stock had been worth $10 at the beginning of the year and dropped to $8 by the end of the year, the percentage change would be -20%. This indicates that the stock dropped 20% in value, meaning that if you had purchased it, you would have lost 20%.
These basic calculations can be applied to other situations, such as comparing the balance sheets of two different years to determine the growth or decline of a business. This information can be used to anticipate shifts in the market or recognize which investments are already in decline.
By understanding how to calculate percentage change, investors can make meaningful judgments about the performance of different investments over time. It is a simple yet important tool that enables individuals to make smart financial decisions.