07 Feb Business Alchemy 101 Lesson 17–Deflated Sales Growth (Part Two)
Here is the equation for Deflated Sales Growth:
100 X[ [(Net Sales X (Price Index Last Year/Price Index))-Net Sales Last Year]/ Net Sales Last Year]
The top portion of the equation is asking first to find out what a dollar is worth this year compared to last year. This can be found at http://www.bls.gov/cpi/tables.htm. You want to look up the index number for last year and for this year and you are going to find a ratio (Price Index Last Year/Price Index) which will tell you that the value of a dollar is either more or less than it was last year, and by how much it is different.
Next you are going to multiply your total sales this year by that ratio which will result in a new dollar figure that represents how much your sales this year would have been worth last year–it will raise or lower depending on whether your dollar is worth more or less this year.
Then you subtract your sales number from this year from the new sales number you have found. This result will tell you how much more you sold (if the number is positive) or how much less you sold (if the number is negative) during this year.
The last two steps–dividing by last year’s sales and multiplying by 100–are turning the difference in sales into a percentage and means that is the percentage that the sales has increased or decreased from last year.