Growth function in Excel is a useful tool that helps users to predict future values based on current values and historical data. This function is especially useful in financial modeling, where users can use it to forecast future sales, revenue, and other key metrics. In this article, we will explore the growth function in Excel, how it works, and how to use it effectively in various scenarios.

What is the Growth Function in Excel?

The growth function in Excel is an inbuilt function that calculates the future value of a series of values based on the present value, a growth rate, and the number of periods. The function takes the following arguments:

- known_y’s: This is a range of cells that contain the current values or historical data.
- known_x’s: This is a range of cells that contain the corresponding periods for the known_y’s.
- new_x’s: This is a range of cells that contain the periods for which you want to predict the future values.

The formula for the growth function is:

=GROWTH(known_y’s, known_x’s, new_x’s, [const])

The const argument is optional and is used to specify a constant growth rate. If you do not specify a constant growth rate, the function will use the existing data to calculate the growth rate.

How Does the Growth Function Work?

The growth function works by using the known_y’s and known_x’s to calculate the growth rate and then using this growth rate to predict the future values for the new_x’s. The growth rate is calculated using the following formula:

Growth rate = (y2/y1)^(1/x2-x1) – 1

Where y1 and y2 are the known_y’s, and x1 and x2 are the known_x’s. The growth rate is then used to calculate the future values for the new_x’s using the following formula:

Future value = Present value * (1 + Growth rate)^(Periods)

For example, if you have a series of values for the past four years and want to predict the values for the next two years, you can use the growth function to do so. If the known_y’s are the past four years’ values and the known_x’s are the corresponding periods (1, 2, 3, 4), the new_x’s will be the periods for the next two years (5, 6). The function will use the past four years’ values to calculate the growth rate and then use this growth rate to predict the future values for the next two years.

How to Use the Growth Function in Excel?

To use the growth function in Excel, follow the below steps:

- Open the Excel sheet and enter the known_y’s and known_x’s in separate columns.
- Select the cell where you want to predict the future value and enter the formula =GROWTH(known_y’s, known_x’s, new_x’s).
- Replace known_y’s with the range of cells containing the current values or historical data.
- Replace known_x’s with the range of cells containing the corresponding periods for the known_y’s.
- Replace new_x’s with the range of cells containing the periods for which you want to predict the future values.
- Press Enter to get the predicted value.