Annual Growth Rate

Annual Growth Rate is used to describe the growth of some element of a business (revenue, units delivered, etc.).  The annual growth rate can be expressed in terms of an average or compound. 

Annual Growth Rate

Annual Growth Rate is used to describe the growth of some element of a business (revenue, units delivered, etc.).  The annual growth rate can be expressed in terms of an average or compound. Compound Annual Growth Rate (CAGR) is generally used as it reduces the effect of volatility of periodic returns that can render an Average Annual Growth Rate (AAGR) meaningless.


Annual Growth Rate Formula

The formula for Average Annual Growth Rate is the Arithmetic Mean Return, or sum of annual revenue changes divided by number of years.

Formula for Average Annual Growth Rate

Compound Annual Growth Rate is calculated as the geometric mean of 1 plus each year's return.

Formula for Coumpound Annual Growth Rate

Annual Growth Rate Interpretation

The Annual Growth Rate can be used for communicating the average returns of investment funds and comparing the performance of investment advisers. However, the Annual Growth Rate will not include any indication of the investment's volatility or overall risk.

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