How to Calculate Percentage Change in Accounting

Percentage change is a fundamental accounting metric used to measure the relative growth or decline of a value over time. It's essential for financial analysis, budgeting, and performance evaluation. This guide explains how to calculate percentage change accurately, including the formula, step-by-step instructions, practical examples, and common pitfalls to avoid.

What is Percentage Change?

Percentage change measures how much a value has increased or decreased relative to its original amount. In accounting, it's used to track financial performance, compare periods, and assess profitability. A positive percentage indicates growth, while a negative percentage shows a decline.

Key applications of percentage change in accounting include:

Tracking revenue growth or decline
Measuring profit margins
Evaluating expense changes
Comparing financial performance across periods
Analyzing investment returns

Percentage Change Formula

The standard formula for percentage change is:

Percentage Change = [(New Value - Original Value) / Original Value] × 100

Where:

New Value is the current value
Original Value is the initial value

The result can be positive (increase) or negative (decrease).

How to Calculate Percentage Change

Identify the original value (starting point)
Determine the new value (ending point)
Subtract the original value from the new value
Divide the result by the original value
Multiply by 100 to convert to a percentage
Interpret the result (positive = increase, negative = decrease)

Tip: Always use the original value as the denominator to maintain consistency in percentage change calculations.

Worked Examples

Example 1: Revenue Increase

Last year, Company X had revenue of $50,000. This year, revenue increased to $60,000. What is the percentage change?

Percentage Change = [(60,000 - 50,000) / 50,000] × 100 = 20%

The revenue increased by 20%.

Example 2: Expense Decrease

A company's monthly expenses were $12,000 last month and $9,600 this month. What is the percentage change?

Percentage Change = [(9,600 - 12,000) / 12,000] × 100 = -20%

The expenses decreased by 20%.

Example 3: Negative Original Value

If a company had a loss of $8,000 last year and a profit of $4,000 this year, what is the percentage change?

Percentage Change = [(4,000 - (-8,000)) / -8,000] × 100 = 150%

The company's financial position improved by 150%.

Common Mistakes to Avoid

Using the wrong denominator: Always use the original value as the denominator, not the new value.
Ignoring the order of values: Subtract in the correct order (New - Original) to get the correct sign.
Rounding too early: Keep intermediate calculations precise before rounding the final percentage.
Misinterpreting negative percentages: A negative percentage doesn't mean the calculation was wrong - it indicates a decrease.
Comparing different bases: Only compare percentage changes when they're based on the same original value.

FAQ

What's the difference between percentage change and percentage difference?

Percentage change measures relative to the original value, while percentage difference compares two different values. For example, comparing two different years' revenues would use percentage difference, while tracking revenue growth over time uses percentage change.

Can percentage change be used for non-financial metrics?

Yes, percentage change applies to any measurable quantity where you want to track relative growth or decline, such as employee productivity, website traffic, or inventory levels.

How do I calculate percentage change when the original value is zero?

Percentage change is undefined when the original value is zero because you can't divide by zero. In this case, you can't calculate a percentage change - you might need to use absolute change or another metric.