Financial Analysis Archive
 
Rounding and Rounding Error

Rounding Tips

Knowing how to round can be tricky, but keep the following in mind:

  • If you round everything down, your final answer will be short of 100, but if you round everything up your final answer will be over.

  • Rounding to 10ths of percentage will give you fairly accurate results that are still easy to work with. For example, if you have 1.7356 as an answer, rounding to 1.7 would be sufficient.

  • Be consistent. If you round one calculation to the 10th of a percent round each figure the same way.

Rounding Error

Rounding is a technique that makes numbers easier to manage in a calculation. However, it also makes those numbers less precise. If your answer was 1.7356 and you round it to 1.7, you’re a little off; in fact, you’re off by 0.0356, the amount that you rounded off. So, if you use that number in other calculations, you’ve technically just made your final answer wrong! But that’s exactly what you should do; you don’t need to follow a number like 1.7356 all the way through your calculations. Yes, you’ll get some errors because you rounded, but in the end, that error doesn’t tend to matter too much, so it’s easier to round and work with manageable numbers. Just be aware that people often round differently, so two people may get two different answers when doing a mathematical calculation. All of those answers can be “correct,” however, and the difference in final numbers attributed to rounding error.