What Is the Average Annual Growth Rate (AAGR)? What is the Formula for Average Annual Growth Rate (AAGR)?

The Average Annual Growth Rate (AAGR) measures the average increase or decrease of a quantity over time, calculated as (Ending Value / Beginning Value)^(1 / Number of Years) - 1.

Oct 24, 2024 at 02:12 pm

What Is the Average Annual Growth Rate (AAGR)?

The Average Annual Growth Rate (AAGR) measures the average rate at which a value or quantity increases or decreases over a period of time. It is commonly used to analyze the performance of investments, businesses, and economic indicators.

Formula for Average Annual Growth Rate (AAGR)

The formula for calculating AAGR is:

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

Step-by-Step Calculation of AAGR:

1. Determine the ending and beginning values: Identify the values of the quantity at the end and beginning of the period under consideration.
2. Count the number of years: Calculate the duration between the ending and beginning dates.
3. Substitute values into the formula: Plug the values into the AAGR formula.
4. Solve for AAGR: Compute the result to obtain the average annual growth rate.

Example:

Let's say we have a stock that was worth $100 at the beginning of 2022 and $150 at the end of 2024. To calculate the AAGR:

1. Ending Value = $150
2. Beginning Value = $100
3. Number of Years = 2 (2024 - 2022)
4. AAGR = (150 / 100)^(1 / 2) - 1 = 22.36%

Applications of AAGR:

• Investment Analysis: AAGR is commonly used to evaluate the performance of investment portfolios, stock indices, and mutual funds. It helps investors compare growth rates over different timeframes.
• Business Analysis: Companies use AAGR to monitor revenue growth, profit margins, and market share. It provides insights into business performance and helps identify areas for improvement.
• Economic Analysis: Macroeconomic indicators such as gross domestic product (GDP), inflation, and unemployment rates are often analyzed using AAGR to assess economic trends and compare different periods.