Certified Valuation Analyst (CVA) Practice Exam

To calculate the percentage growth in sales from one period to the next, which formula is used?

1. Period 1 net sales divided by period 2 net sales

2. Period 2 net sales minus period 1 net sales divided by period 1 net sales

3. Period 2 net sales divided by the sum of period 1 and period 2

4. Period 1 net sales plus period 2 net sales divided by two

The correct answer is: Period 2 net sales minus period 1 net sales divided by period 1 net sales

The correct choice for calculating the percentage growth in sales from one period to the next involves taking the difference between the net sales of the two periods and dividing that difference by the net sales of the initial period. This approach effectively captures the change in sales relative to the starting point, expressed as a percentage. To break it down further, the formula used is: 1. Subtract the net sales of the first period from the net sales of the second period to find the absolute growth in sales. 2. Divide that absolute growth by the net sales of the first period to determine what fraction of the initial sales the growth represents. 3. Finally, multiply the result by 100 to convert it to a percentage. This method provides a clear measure of how much sales have increased (or decreased) in relation to the original sales figure, thus giving a meaningful context to the growth percentage. In contrast, the other options do not provide the correct calculation for percentage growth. For example, dividing period 1 net sales by period 2 net sales would yield a different ratio rather than growth. Summing period 1 and period 2 sales, followed by division by two, would calculate an average rather than a growth figure.