A company makes a profit of \$50 in the first year, then another profit of \$50 in the next year and \$200 loss in the third year which translates to +50, +75 and -200.
What would be the Compounded Annualized "Growth" Rate of the profit if I compare 1st year profit vs 3rd year profit (+50 to -200)
I don't understand how do I calculate when present value is in negative.
If it were +50, +75,+25, and I compare first year vs last, +50 to +25 (= a net of -25), I could've had calculated as 1-(present/past)^(1/years) = ~30%
If the (present/past) is -ve, wouldn't this give an imaginary number? Isn't this undefined if profit growth is 0? How to make sense of this and how to evaluate the Profit Growth metric in financial terms?
Search for the Internal Rate of Return (IRR) and Net Present Value (NPV) formulas. Still the stock market has more to do with art than with science. Accounting books could be outdated with historical cost, cash flow can differ from earnings, there can be hidden liabilities, bad management... DYOR