Average Annual Growth Rate (AAGR) Calculator
What is Average Annual Growth Rate (AAGR)?
The Average Annual Growth Rate (AAGR) is a simple way to measure how much an investment or a metric has grown on average each year over a specific period. Unlike the Compound Annual Growth Rate (CAGR), AAGR does not take into account the effect of compounding. It calculates the arithmetic mean of the growth rates for each year.
To calculate AAGR, you first determine the growth rate for each individual year, and then you average these individual yearly growth rates.
Formula:
AAGR = (Sum of Annual Growth Rates) / (Number of Years)
Where, Annual Growth Rate = ((Ending Value – Beginning Value) / Beginning Value) * 100%
The AAGR provides a straightforward understanding of the average yearly increase, but it can be less representative of overall growth compared to CAGR, especially over longer periods with significant compounding.
Example:
Suppose an investment starts at $1,000 and ends at $2,500 after 5 years. Let's assume the values at the end of each year were: Year 1: $1,200, Year 2: $1,500, Year 3: $1,800, Year 4: $2,100, Year 5: $2,500.
- Year 1 Growth: (($1,200 – $1,000) / $1,000) * 100% = 20%
- Year 2 Growth: (($1,500 – $1,200) / $1,200) * 100% = 25%
- Year 3 Growth: (($1,800 – $1,500) / $1,500) * 100% = 20%
- Year 4 Growth: (($2,100 – $1,800) / $1,800) * 100% = 16.67% (approx)
- Year 5 Growth: (($2,500 – $2,100) / $2,100) * 100% = 19.05% (approx)
Sum of Annual Growth Rates = 20% + 25% + 20% + 16.67% + 19.05% = 100.72%
AAGR = 100.72% / 5 years = 20.14% (approx)
This means the investment grew by an average of 20.14% each year, without considering compounding.