What Is the Average Annual Growth Rate (AAGR)?

The Average Annual Growth Rate (AAGR) gauges the average percentage change of a metric over a defined period, capturing its compound growth or decline.

Oct 19, 2024 at 11:18 pm

1. What is Average Annual Growth Rate (AAGR)?

The Average Annual Growth Rate (AAGR) is a metric used to calculate the average percentage change of a value over a specified period. It measures the compound annual rate of growth or decline of an investment, asset, or other metric.

2. Formula:

AAGR = (Ending Value/Beginning Value)^(1/Number of Years)-1

3. Calculation Steps:

Calculate the ratio of the ending value to the beginning value.
Raise the ratio to the power of 1 divided by the number of years.
Subtract 1 from the result to obtain the AAGR as a percentage.

4. Interpretation:

A positive AAGR indicates growth, while a negative AAGR indicates decline. The higher the AAGR, the faster the growth or decline.

5. Applications:

AAGR is used in various fields to measure growth and performance, such as:

Investments (stock market, mutual funds)
Economic indicators (GDP, consumer spending)
Business performance (revenue, profits)
Population growth
Technological advancements

6. Limitations:

Assumes a constant growth rate over the entire period.
Does not account for fluctuations or volatility within the period.
Can be misleading if the growth rate is not constant.

7. Example:

An investor purchases a stock for $100. After five years, the stock is worth $150. The AAGR can be calculated as:

AAGR = (150/100)^(1/5)-1 = 0.075
or 7.5% per year

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