How to calculate the annual growth rate?

What Is Average Annual Growth Rate (AAGR)?

The average annual growth rate (AAGR) reports the mean increase in the value of an individual investment, portfolio, asset, or cash flow

Formula for the Average Annual Growth Rate (AAGR) Is

AAGR= GR a + GR b + GR c + ……../ N

GR a= Growth Rate for period a ( year 1 for example)

GR b = Growth rate for period b (year 2 for example)

and so on.

N = the number of those periods ( for example years)

For example N= 5 for five years period

AAGR Example

The AAGR measures the average rate on return or growth over a series of equally spaced time periods. As an example, assume an investment has the following values over the course of four years:

Beginning value = $100,000

End of year 1 value = $120,000

End of year 2 value = $135,000

End of year 3 value = $160,000

End of year 4 value = $200,000

Thus, the growth rates for each of the years are as follows:

So each year is calculated like that:

(The beginning value / the end value)-1

It is a percentage so you need to multiply the result by 100 for each year

Year 1 growth = $120,000 / $100,000 – 1 = 20%

Year 2 growth = $135,000 / $120,000 – 1 = 12.5%

Year 3 growth = $160,000 / $135,000 – 1 = 18.5%

Year 4 growth = $200,000 / $160,000 – 1 = 25%

and so on……

The AAGR is calculated as the sum of each year’s growth rate divided by the number of years:

AAGR = (20%+12.5%+18.5%+25%) / 4 =19%