Calculate the ratio of each years’ data to the previous year for each of the above items for JNJ. For
example, for the year 2018, the ratio for sales is \$81,534/\$76,481 = 1.06607.
b. From your calculations in part a, calculate each year’s rate of growth. Using the example in part a, the
ratio is 1.06607, so the percentage growth in sales for 2018 is 1.06607 – 1 or 6.607%.
c. Calculate the average growth rate (using the AVERAGE function) of each of the above items using the
results you calculated in part b. These averages are arithmetic averages.
d. Use the Geomean function to estimate the compound annual average growth rate (CAGR) for each of
the above items using the results that you calculated in part a. Be sure to subtract 1 from the result to
arrive at a percent change. These are geometric averages.
e. Compare the results from part c to those for part d for each item. Is it true that the arithmetic average
growth rate is always greater than or equal to the geometric average (CAGR)?
f. Contrast the results for the geometric averages to those for the arithmetic average for the variables
listed below. What do you observe about the differences in the two growth estimates for Sales and
Retained Earnings? What do you observe about the differences in the two estimates for Net Cash from
Operations and Net Income? Hint: Look at the results from part b (the individual yearly growth rates) for
each variable to draw some conclusions about the variation between the arithmetic and geometric
averages.
1. Sales
2. Retained Earnings
3. Total Assets
4. Net Cash from Operations
5. Net Income