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Growth Rate
Definition
Growth rate measures the percentage increase in value of an investment, company, or economy over a specific period.
Explanation
Growth rate is used to evaluate how quickly an investment, revenue, or economy is expanding. Compound annual growth rate (CAGR) smooths returns over multiple periods to show the average annual growth. Higher growth rates typically come with higher risk and volatility.
In investing, growth rate helps project future values using compound growth formulas. A company with 15% annual growth doubles in about 5 years.
Example
An investment growing at 8% annually doubles in approximately 9 years (Rule of 72: 72 ÷ 8 = 9). At 12% growth, it doubles in 6 years.