What is a CAGR Growth Rate?


My understanding is that if the CAGR is 20% from 1990 to 2020, then each year there was an average ten percent increase from the last year.

However this would not account for variability, e.g. if it was exponential growth for a few years, then went linear or plateaued out.

Is the above correct?

In: Economics

Exactly. Another way to put it is, say the price of something went up from A to B in ten years. What would be the annual growth rate that gets you from A to B?

CAGR averages the spikes and dips over a period and gives you a “theoretical” growth rate it it were smooth over a period that got you from T0 to T1. It’s just a simplified way to saying “if it weren’t for the variations, what would have gotten me from one value to another”.

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