Matthew W Ford

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## Finding Percentage Difference (Updated 06/02/2010 03:37 PM )

One of the most common calculations you'll make as an analyst (or as a manager for that matter) is determining the percentage difference between two numbers.  Why?  Well, most managers think in terms of relative change.  For example, consider the following data that reports the dollar value of a company's finished goods inventory (FGI) at the end of fiscal year (FY) 2005 and 2006:

 FY2009 FY2010 FGI (\$ millions) \$320 \$475

It's pretty easy to see that inventory increased year over year by (\$475 - \$320 = \$155).  In addition, though, many managers would want to the percentage change from 2002 to 2003.

There are a number of "formulas" for finding this percentage.  My fave is:

% difference = ((value at time2/value at time1) - 1) * 100

Relative to our data above:

% difference = ((475/320 - 1) *100 = 48.4%

Year over year inventory increased 48.4%--a figure that might raise some eyebrows among managers that I know...

Here's how I usually report these kind of results:

 FY2002 FY2003 Difference %Difference FGI (\$ millions) \$320 \$475 +155 +48.4%

One final observation.  Although finding the percentage difference in values taken at two periods in time is the most common application of this method, it can also be used to compare two alternatives or companies.  For example, suppose our main competitor reported FY2003 inventories of \$390 million.  What is the percentage difference between us and them?

% difference = ((them/us) - 1) * 100 = ((390/475) - 1) * 100 = -17.9%

Compared to us, our competitor was holding -17.9% less inventory than we were at the end of FY2003.

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