What is annual growth rate?

Annual growth rate is represented in a formula that divides yearly growth at the beginning of a year by the total value of that growth at the end of the year. Annual growth rate is usually calculated as a percentage to help investors visualize the growth amount. Here is what the formula looks like:

What is compound annual growth rate?

Compound annual growth rates determine the amount of growth that accumulates, similar to detecting interest. While both calculations can be used to observe long-term trends, annual growth rate looks at the amount of an investment's appreciation over the course of a single year.

What is a growth rate example?

At their most basic level, growth rates are used to express the annual change in a variable as a percentage. For example, an economy’s growth rate is derived as the annual rate of change at which a country’s GDP increases or decreases. This rate of growth is used to measure an economy’s recession or expansion.

What is the difference between average annual growth rate (AAGR) and CAGR?

Average annual growth rate (AAGR) is the average increase. It is a linear measure and does not take into account compounding. Meanwhile, the compound annual growth rate (CAGR) does and it smooths out an investment's returns, diminishing the effect of return volatility.