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    t000295cj's Avatar
    t000295cj Posts: 1, Reputation: 1
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    #1

    Feb 1, 2010, 02:13 PM
    Net income growth formula
    I am looking for a calculation that explains revenue growth net of inflation impact. For example revenue grew 5% year over year, but inflation was 3%. Does this mean that real revenue grow was only 2%? How do I calculate the real revenue growth?
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #2

    Feb 1, 2010, 04:49 PM
    For most practical purposes your method will get you close. The actual relationship between the nominal rate n, the inflation rate i, and the real rate r is...



    Given any two of those you can easily solve for the third.

    You can see then that in the context of a nominal growth of 5% and an inflation rate of 3%, the real growth over that period is 1.9417... %. Close to 2%, but not quite.

    But in casual conversation, when rates are within their usual ranges, a lot of people use the simpler (albeit slightly inaccurate) relationship you used; namely r = n - i.
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