Compound Growth Rate
Compound growth rate connects starting and ending values through a constant rate per period; the period unit determines how the result is interpreted.
Growth rates, ratio averages, and project-return calculations answer different financial questions; the correct method depends on periods, weights, and cash flows.
Choosing an average starts with the financial question. Summarizing annual observations, compounding growth through time, and combining valuation multiples require different calculations. A single percentage can conceal those differences.
Compound growth rate connects two values using a stated period unit. CAGR expresses that rate annually, while AAGR averages individual yearly changes. Neither automatically separates deposits from investment gains.
The harmonic mean can aggregate positive valuation multiples when weights match the underlying amounts. Multiple IRRs present a different problem: a project’s cash flows can produce more than one break-even discount rate, so a single reported IRR may be ambiguous.
Use the worked examples to check period counts, investment weights, and cash-flow treatment. These references explain measurement methods, not guaranteed growth or personalized investment decisions.
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Compound growth rate connects starting and ending values through a constant rate per period; the period unit determines how the result is interpreted.
The harmonic mean averages reciprocals and can aggregate positive valuation multiples when weights match the underlying investment amounts.
Multiple IRRs occur when nonconventional cash flows make net present value equal zero at more than one discount rate.