USA How to calculate net loss as percentage of net worth over period of time?

[Jaybird2014]

So I've been asked to calculate net loss as a percentage of net worth over a 24 month period (end of 2012 to end of 2014).

From what I understand, there are two ways of doing this. Take the difference of the net worth from the end of 2012 and the end of 2014. Then take that number and divide it by the net worth from 2012, which you get a decimal, which you can turn into a percentage.

Alternatively, you can add up the net loss from the end of 2013 and 2014, then divide it by the net worth at the end of 2012. Then you can turn that into a percentage.

Am I correct that these two ways will calculate net loss as a percentage of net worth over a 24-month period? Should these two methods be getting the same number? I'm getting approximately 55% for the 1st equation, but 94% with the 2nd equation, which is freaking me out, because the sample one (with totally different numbers) I was given by my supervisor had both formulas end up approximately around 22.5% (though they weren't exactly the same). Is this just a coincidence, or am I doing something drastically wrong?


thanks in advance.

 

[smallbushelp]

Your method sounds a bit off to me. In your first example, you're dividing net worth over a period by net worth at a specific time. I think that answer would give you the percentage change in net worth over the period. In your second example, you are dividing total net loss over a range by net worth from a fixed period - and not even a corresponding period. I don't think either method is going to give you what you're really looking for. And no, those two methods will not give you the same result because they are not the same.

You need to be consistent in dividing net loss from a period by net worth from the same period. It would make more sense to me that you would take the amounts at the end of each of the 24 months and divide them by each other. That way, you would be able to see a trend. Then you could calculate the percentage change in the ratio.

Hope that helps.