Average Annual Growth Rate (AAGR)

Average Annual Growth Rate (AAGR) is the arithmetic mean of a series of annual growth rates over a specified multi-year period — calculated by adding up all the individual yearly growth rates and dividing by the number of years. For example, if a company's revenue grows by 15%, 20%, 10%, and 25% over four consecutive years, the AAGR is (15 + 20 + 10 + 25) ÷ 4 = 17.5%. Unlike the Compound Annual Growth Rate (CAGR), which smooths returns through geometric compounding to show the equivalent steady annual growth rate, AAGR uses a simple arithmetic average that ignores the compounding effect and can overstate growth in volatile scenarios. This distinction matters significantly for Indian investors: a company with highly variable annual growth rates will show a higher AAGR than its CAGR — making the AAGR potentially misleading for assessing sustainable underlying growth momentum. For investment analysis, CAGR is generally preferred over AAGR for multi-year growth assessments because it accounts for compounding and provides a single comparable rate of sustained annual growth. AAGR is still useful for quick calculations and for simple period-to-period comparisons where the distinction between arithmetic and geometric averaging is immaterial.