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  • Year 2004 2005 2006 2007

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    Anu Priya
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    The compound annual growth rate (CAGR) of a company's revenues from 2004 to 2007 was 25%, as multiplying the 2004 revenue of $100 by (1.25) to the power of 3 equals the 2007 revenue of $200. In contrast, the arithmetic mean return looks at the average annual growth rate over the period by summing all annual changes and dividing by the number of years.

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    The compound annual growth rate (CAGR) of a company's revenues from 2004 to 2007 was 25%, as multiplying the 2004 revenue of $100 by (1.25) to the power of 3 equals the 2007 revenue of $200. In contrast, the arithmetic mean return looks at the average annual growth rate over the period by summing all annual changes and dividing by the number of years.

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    2 views2 pages

    Year 2004 2005 2006 2007

    Uploaded by

    Anu Priya
    The compound annual growth rate (CAGR) of a company's revenues from 2004 to 2007 was 25%, as multiplying the 2004 revenue of $100 by (1.25) to the power of 3 equals the 2007 revenue of $200. In contrast, the arithmetic mean return looks at the average annual growth rate over the period by summing all annual changes and dividing by the number of years.

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    of 2

    Suppose the revenues of a company for four years, V(t) in above formula, have been: Year 2004 2005

    2006 2007 Revenues 100 115 150 200

    = 2007 - 2004 = 3 Then the CAGR of revenues over the three-year period from the end of 2004 to the end of 2007 is:

    Verification: If you multiply the initial value by (1 + CAGR) three times (because we calculated for 3 years) you will get exactly the final value again. This is:

    For n = 3:

    For comparison:

    the Arithmetic Mean Return (AMR) would be the sum of annual revenue changes (compared with the previous year) divided by number of years, or:

    In contrast to CAGR, you cannot obtain by multiplying the initial value, three times by (1 + AMR) (unless all annual growth rates are the same).

    the Arithmetic Return (AR) or simple return would be the ending value minus beginning value divided by the beginning value:

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