What is the Average Annual Growth Rate (AAGR)?
The Average Annual Growth Rate (AAGR), often referred to as the compound annual growth rate (CAGR) when growth is compounded, is a measure of the average yearly increase in value of an investment or a metric over a specified period longer than one year. It smooths out the fluctuations that can occur from year to year, providing a single, representative growth rate.
AAGR is particularly useful for comparing the performance of different investments or tracking the progress of a business metric over time. It helps to understand the underlying trend of growth, ignoring short-term volatility.
How is AAGR Calculated?
The formula for AAGR is derived from the compound interest formula. For CAGR, the formula is:
AAGR = (Ending Value / Beginning Value)^(1 / Number of Years) - 1
Where:
- Ending Value: The value of the investment or metric at the end of the period.
- Beginning Value: The value of the investment or metric at the start of the period.
- Number of Years: The total number of years over which the growth is measured.
It's important to note that if the growth is not compounded, a simpler arithmetic mean of the year-on-year growth rates would be used. However, in financial and business contexts, the compounded growth rate (CAGR) is more commonly used and what this calculator computes.
When to Use the AAGR Calculator:
- To understand the consistent growth rate of your investments over several years.
- To compare the historical performance of different stocks, mutual funds, or business units.
- To project future values based on historical growth trends.
- To analyze the growth of revenue, profit, user base, or any other metric over time.