Business Glossary

What is Appreciation?

Appreciation is an increase in value over time. In principle, any asset can appreciate. In practice, appreciation is most likely in assets with an indefinite lifespan (such as property). By contrast, assets with a finite lifespan tend to lose value over time – known as depreciation.

Examples of appreciation

In the context of business, the most common forms of appreciation are:

  • capital appreciation
  • currency appreciation
  • some businesses may also benefit from real-estate appreciation

Capital appreciation refers to the increase in value of financial assets. For example, one company may choose to sell part of its operations to another company. It may take some or all of the payment in shares of the other company. If these shares gain value over time, the first company will benefit from capital appreciation.

Currency appreciation occurs when one currency gains value compared to another currency. This is often referred to as the “exchange rate”. Currency appreciation can be a benefit if you hold reserves in that currency. If you don’t, however, it can be a drawback because it makes goods and services more expensive to buy.

If a business holds land (such as a farm) and/or property, it can also benefit from real-estate appreciation. Both land and property are in limited supply and can generally be used indefinitely. This means they generally gain value over time.

Why assets appreciate

There are three main reasons why assets appreciate:

  • inflation
  • reduced supply
  • increased demand

The term “inflation” refers to the fact that prices as a whole tend to increase over time. They do not, however, necessarily rise equally. What’s more, even with inflation, some assets may still depreciate. This is particularly likely if they have finite lifespans.

Reduced supply and increased demand can both increase the level of competition between buyers. This can translate into higher purchase prices and higher values for assets a company already owns.

How to calculate appreciation

While you own an asset, the easiest way to calculate appreciation is to use the annual percentage growth rate. To do this, take the asset’s value at the end of a year and divide it by the asset’s value at the start of the year. Then subtract one from the result and multiply the answer by 100.

For example, if an asset was worth $100 at the start of the year and $150 at the end, the calculation would be as follows.

(150/100) - 1 = 0.5
0.5 * 100 = 50
So you have annual appreciation of 50%

If you then dispose of an asset, you can calculate its total appreciation by using the Compound Annual Growth Rate.

To calculate this, take the asset’s value when you dispose of it and divide it by the asset’s value when you bought it. Then, you substract the result of dividing one over the number of years you had the asset. Finally, subtract one from the result and multiply the answer by 100.

For example, if you bought an asset for $100 and sold it five years later for $150, the calculation would be as follows:

(150/100) - (1/5) = 1.3
1.3 - 1 = 0.3
0.3 * 100 = 30

So you have a compound annual growth rate of 30%.

Understanding the meaning of appreciation in business

The term “appreciation” sounds very positive. In general English, it’s used in a similar way to terms such as acknowledgement, recognition, admiration and gratitude.

In business, however, the meaning is different. Recording appreciation on a company’s balance sheet can make it look healthier. Also, if assets increase in value, it may be possible to put them to work as extra collateral for financing.

On the other hand, if assets increase in value, they may cost more to insure. There may also be tax implications, particularly with real estate.

This article is for informational purposes only and does not constitute legal, employment, tax or professional advice. For specific advice applicable to your business, please contact a professional.

Explore how Square can help you run your business.

Appointments POS

The point-of-sale solution for bookings, payments, retail, inventory, and more.

Ecommerce platform

Turn any business into an online business with a free eCommerce website.

Invoicing software

Square Invoices are free to create and send. Easily send customised online invoices, estimates, and recurring payments with Square.

EFTPOS machine

Square Terminal is your all-in-one credit card and eftpos machine for payments and receipts. It’s secure, reliable and an entirely fairer way to get paid.

Point of Sale Software

Square Point of Sale makes it easy to sell in person, online, over the phone or out in the field. It’s simple to use, and there’s no training required

Restaurant POS

An all-in-one restaurant POS system built to help owners, managers, and staff make the most of every shift.

Retail POS

Square for Retail streamlines your business and keeps everything synced across in-store and online sales, inventory, purchase orders, Customer Directory, and advanced reports.

Tap to Pay on Android™

Accept contactless payments on NFC-enabled devices. Download the Square POS app to start taking payments with just your phone.


Take contactless payments with just your Android phone.

Accept contactless cards and digital wallets with Tap to Pay on Android.

Get business insights and hear more about Square.

Join our email list to receive stories from business owners, industry tips, new product information, and more.

By providing your information you agree to receive marketing communications from Square. Please visit Square’s Privacy Policy for further information.