And yes, all these references to years get confusing. We say that something grew by 14.47% from Year 1 to Year 4. We use the anchor year and the end year, so at first glance it seems like four years. But what we really mean is that there were three full years of compounded growth. In other words, it was a three-year period involved.
And THAT illustrates precisely how confusing this topic can be!
Final Thought About Growth Rates
Maybe it’s just that I like numbers. Maybe it’s that I use them a lot, perhaps too much.
But it’s nice when the growth figures we talk about mean the same thing to one and to all.
That’s why it’s important to understand the difference between simple annual growth rate and compound annual growth rate. It’s about getting on the same page.
Additional CAGR Resources
It might help to see the CAGR calculation in a spreadsheet or experience it in an interactive calculator. For that, please see:
- CAGR Formula for Google Sheets – Go here (Make a Copy of this document or download it to your device to use the calculator.)
- CAGR Calculator Online – Go here
Editor’s note: This article was updated on January 6, 2019. The main points and formulas are just as valid as the day this piece was written. Certain language was clarified per the comments below, to eliminate confusion. We hope it helps you understand the concept of simple annual growth rate and compound average growth rate.