A combined growth rate depends on the initial sizes of the parts. Averaging each part's percentage equally can answer a different question from how much the total business measure changed.
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Reconstruct the totals
In a fictional business, division A's revenue rises from 100 to 120 currency units. Division B stays at 900. Total revenue rises from 1000 to 1020, so combined growth is 2%.
A grows by 20% and B by 0%. Their equally weighted average is 10%, which is not the total-revenue growth here.
Use the correct starting weights
A initially represents 10% of total revenue and B 90%. The weighted growth is 0.10(20%) + 0.90(0%) = 2%.
The weights refer to starting-period amounts for this calculation. Using ending shares without changing the derivation would not reproduce the same expression.
Keep definitions and coverage aligned
Actual comparisons may involve changed reporting boundaries, currencies or measurement definitions. Check those conditions before interpreting a difference as ordinary growth.
The fictional figures do not identify a real company, predict performance or establish an investment conclusion.
Read the headline with its denominator
Ask whether a reported percentage describes the total, a typical division or an equal-weighted average. Each can be useful when clearly labelled.
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Continue reading: Wharton Investment Competition: Revenue, Profit and Cash Flow.
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Official information and further reading: Source 1
