Average Annual Growth Rate (AAGR) Calculator
Understanding Average Annual Growth Rate (AAGR)
The Average Annual Growth Rate (AAGR) is a measure used to determine the average rate at which a value has grown over a period of time, on a year-over-year basis. It is a simple way to understand the trend of growth, assuming a constant rate of growth each year, although in reality, growth is often more variable.
AAGR is calculated by finding the total growth over the period and then dividing it by the number of years. It's important to note that AAGR does not account for the compounding effect of growth, which is what the Compound Annual Growth Rate (CAGR) metric addresses.
How to Calculate AAGR:
The formula for AAGR is as follows:
AAGR = ((Ending Value – Starting Value) / Starting Value) / Number of Years
Alternatively, you can calculate the total percentage growth first and then divide by the number of years:
Total Percentage Growth = ((Ending Value – Starting Value) / Starting Value) * 100%
AAGR = Total Percentage Growth / Number of Years
Example:
Let's say a company's revenue was $10,000 at the beginning of a 5-year period and grew to $25,000 by the end of the period.
- Starting Value: $10,000
- Ending Value: $25,000
- Number of Years: 5
Using the formula:
Total Percentage Growth = (($25,000 – $10,000) / $10,000) * 100% = ($15,000 / $10,000) * 100% = 1.5 * 100% = 150%
AAGR = 150% / 5 years = 30% per year
This means, on average, the company's revenue grew by 30% each year over the 5-year period.
When to Use AAGR:
AAGR is useful for getting a quick understanding of average yearly growth. However, for a more accurate representation of growth that accounts for compounding, especially over longer periods or when comparing investments, CAGR is generally preferred.