imported>Doug Williamson |
imported>Doug Williamson |
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| Compound Annual Growth Rate. | | Compound Annual Growth Rate. |
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| The compound annual growth rate is calculated from total growth over a longer period as:
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| CAGR = (End amount / Starting amount)<sup>(1/n)</sup> - 1
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| ''Where:''
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| n = number of years between the two points sampled
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| ===<span style="color:#4B0082">Example 1: Sales growth over two years</span>===
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| Sales have grown from $100m to $150m over the most recent 2-year period.
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| The CAGR is:
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| = (150 / 100)<sup>(1/2)</sup> - 1
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| = 1.5<sup>(1/2)</sup> - 1
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| = 22.5%.
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| During this particular 2-year historical period, sales were growing at an average rate of 22.5% per annum.
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| However, this is not evidence about any other periods, particularly not future periods.
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| ===<span style="color:#4B0082">Example 2: Sales growth over three months</span>===
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| The same formula can be used to calculate a compound annual growth rate, based on a ''shorter'' sampling period.
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| Sales grew from $100m to $115m over a historical period of 3 months (= 0.25 years).
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| The CAGR caclulated from this data is:
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| = (115 / 100)<sup>(1/0.25)</sup> - 1
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| = 1.15<sup>4</sup> - 1
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| = 74.9%.
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| During this particular 3-month period, sales grew at a rate of 74.9% per annum.
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| On its own, this is NOT evidence that sales will continue to grow at this rate during the remaining 9 months of the year, nor indeed in any other period.
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| Proper use of this kind of analysis will investigate the ''reasons'' for the figures, and then respond appropriately.
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| == See also == | | == See also == |
| | * [[Compound annual growth rate]] |
| * [[Compound interest]] | | * [[Compound interest]] |
| * [[YOY]]
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| * [[Extrapolation]] | | * [[Extrapolation]] |
| * [[Geometric mean]] | | * [[Geometric mean]] |
| | * [[YOY]] |
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| | [[Category:Investment]] |
| | [[Category:Financial_products_and_markets]] |
