Selecting profit and loss account growth drivers

Turnover is the most prominent item in a profit and loss account. It, therefore, makes sense to concentrate on identifying a driver for turnover and then relating some of the less significant line expenses to projected turnover.

Appropriate drivers could be year-on-year growth or inflation, or compound annual growth rate (CAGR). Let's take a look at these two drivers in more detail now.

Year-on-year growth

This is simply the growth from one year to the next. It is usually expressed as a percentage. Year-on-year growth in turnover from year1 to year2 can be calculated as follows:

This can be simplified as follows:

This will give the historical growth driver in turnover for year2.

The growth driver for year3 will be as follows:

In this way, you will calculate growth drivers for each of the historical years (except for year 1 as there is no...