Chapter 7 · Day 7 — Growth analysis
Growth rates and CAGR
Growth is easy to calculate and easy to present dishonestly. The defence is knowing which base was used.
7 of 30 · 11 min
Growth Rate = (Current − Previous) ÷ Previous × 100. Simple, and simple to distort by choosing the starting year.
CAGR — the honest multi-year number
CAGR = (Ending ÷ Beginning)^(1/n) − 1, where n is the number of years, not data points.
| Year | Revenue Rs '000 | YoY |
|---|---|---|
| FY1 | 72,000 | — |
| FY2 | 83,000 | +15.3% |
| FY3 | 79,500 | −4.2% |
| FY4 | 98,000 | +23.3% |
| FY5 | 1,20,000 | +22.4% |
4-year CAGR = (1,20,000 ÷ 72,000)^(1/4) − 1 = 1.6667^0.25 − 1 = 13.6%. The smooth 13.6% hides a year when revenue fell — which is exactly why CAGR should be shown beside the yearly series, never instead of it.
Which growth line matters, by sector
| Sector | Watch | Because |
|---|---|---|
| Commercial bank | Loan and deposit growth | That is the balance sheet expanding |
| Microfinance | Borrower growth, average loan size | Growth by lending more to the same people is riskier |
| Hydropower | Generation, not revenue | Revenue is a PPA rate times units sold |
| Insurance | Premium growth, policy count | Premium is the top line |
| Manufacturing | Volume and capacity utilisation | Price rises can flatter revenue |
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