CAGR for Non financial

[fazal alanallur]

Is it ok to use Compound Annual Growth Rate (CAGR) for non-financial items like number of units and area? Can anyone please give a clarification?

[Sudip Singh]

Hi, 

My viewpoint on this:

CAGR additinally accounts for contributions made by previous growths. For financial data it makes sense: for ex: where money makes money. Now if we apply it on stock price, will make sense? Say a stock is moves from Rs 100 to Rs 120 in 1 year. Will this additional Rs 20 contribute to next year's growth in stock price value? Can we provide some logic behind this? This question needs to be explored.

Now coming to number of units the same concept should apply.

Similarly for area, it depends what u want to represent through Area. Does compounding logic apply?

Fir ex. Say no of units sold bring in revenue and additional (growth)units bring additional revenue and thus in turn can lead to production of more units and the cycle repeats. Thus compounding might be justified. Similarly for Area: if u represent revenue wrt to Area or say, corona spread etc then it makes sense. 

However, in plain raw number of units or area for that matter it would be difficult to justify compounding.

Regards,

Sudip Singh

Assistant Engineer

UPRVUNL

On Wed, 14 Oct, 2020, 7:22 pm fazal alanallur, <faz...@gmail.com> wrote:

Is it ok to use Compound Annual Growth Rate (CAGR) for non-financial items like number of units and area? Can anyone please give a clarification?

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