Calculate percent change with ABS function.

In my opinion, the calculation of percent change is one of the most misunderstood calculations in finance.  Most of the time the calculation is correct if both of the numbers compared are positive.  The problem arises when one or both of the numbers is negative.  If the denominator happens to be negative the calculation will be incorrect.  Unfortunately the calculation is so widely used that most people don’t realize there’s an error until it’s too late.

To insure that the sign in the denominator is always positive, apply Excel’s “ABS” function to the denominator.  If you make this a habit, your calculation of percent change will always be correct.

(a-b)/abs(b)

For example, if the price of gas rises from $2.50 / gallon to $2.75 / gallon, the price has risen 10%.

( $2.75 - $2.50 ) / abs ( $2.50 ) = 10%

Let’s assume there is a credit on the financial statement and the beginning balance of an account was -$5.  The next month the balance in the account is $10.  The percent change in the account between the two months is calculated as:

( $10 - (-$5)) / abs ( -$5 ) = 300%