Calculating the annual sales growth of a company gives you an idea of how fast the firm is expanding. For example, assume a company has an annual sales growth of 8 percent, and then the amount of sales in the later year increased 8 percent over the previous year's sales volume. Projecting this growth rate onto future years allows you to estimate future sales volume. Assuming the growth rate remains relatively constant, this technique may be applied to any number of years in the future.
1. Divide the current annual sales volume by the sales volume of any past year. Although using the preceding year simplifies the calculation, incorporating multiple years gives a better picture of the company's overall growth. For example, if you had $120 million in sales in year 2010, you might divide the $80 sales volume from 2006 to derive an overall growth factor of 1.50.
2. Take the N root of the growth factor, where N is the number of years between sales figures. If you calculated the growth factor between two consecutive years, this step is unnecessary. In the example, you would take the 4th root of 1.50, which gives you an average annual growth factor of 1.1067.
3. Raise this figure to the power of however many years into the future you would like to project. If you only wish to calculate the next year's sales volume, this step is unnecessary. In the example, to estimate the sales volume 3 years in the future, you would raise 1.1067 to the power of 3, which gives you 1.3554.
4. Multiply this figure by the current sales volume to calculate the future sales volume. In the example, multiplying 1.3554 times $120 million predicts a 2013 sales volume of $162.65 million.
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