Revenue Bridge

CFA General
#1

Hey, guys - I’m having a bit of a brain fart - what is the right formula to do a simple revenue bridge (price, volume)?

To assess revenue growth between 2016 and 2015, is the right formula:

  • (2016 Price - 2015 Price) * 2015 Volume + (2016 Volume - 2015 Volume) * 2016 Price

or is it

  • (2016 Price - 2015 Price) * 2016 Volume + (2016 Volume - 2015 Volume) * 2015 Price

Is one “more correct” than the other?

#2

What you’re looking for is:

P16V16 – P15V15

Do some algebra:

−(P16 − P15)V15 + (V16 − V15)P16

= −P16V15 + P15V15 + P16V16 – P16V15

= P15V15 + P16V16 – 2(P16V15)

Clearly, that’s not it.

−(P16 − P15)V16 + (V16 − V15)P15

= −P16V16 + P15V16 + P15V16 – P15V15

= −P16V16 + 2(P15V16) – P15V15

Clearly, that’s also not it.

How about this:

(P16 − P15)V16 + (V16 − V15)P15

= P16V16 – P15V16 + P15V16 – P15V15

= P16V16 – P15V15

That looks about right.