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📝 CAGR vs YoY Growth: What’s Better?
📝 CAGR vs YoY Growth: What’s Better?
Imagine you planted a small tree 🌱. After 1 year, it grew 5 inches. But after 3 years — it was 20 feet tall! 🌳
Now you wonder — how fast did it really grow each year? 🤔
This is where CAGR and YoY Growth help you understand growth clearly! 📈
🔍 What is YoY Growth?
✔️ YoY = Year on Year Growth
It simply shows how much something grew compared to the last year.
Example:
✔️ If a company made ₹100 last year and ₹120 this year — YoY growth = 20%.
So YoY says:
👉 “How much did it grow compared to the previous year?”
🔍 What is CAGR?
✔️ CAGR = Compound Annual Growth Rate
It shows the average yearly growth rate over many years — as if the company grew steadily every year by the same percentage.
Example:
✔️ If a company made ₹100 five years ago and ₹200 today — CAGR tells you:
👉 “By how much did it grow every year, on average, to reach ₹200?”
So CAGR says:
👉 “What was the smooth, steady yearly growth over time?”
🤔 Difference Between YoY & CAGR:
🎯 1. Time Period:
✔️ YoY = 1 year change only 🗓️
✔️ CAGR = Average growth over multiple years 🕰️
🎯 2. Useful for:
✔️ YoY: Short-term performance (last 1 year) 🚀
✔️ CAGR: Long-term performance (3, 5, 10 years) 📆
🎯 3. Can YoY be Misleading?
Yes! 😲
✔️ One bad or good year can make YoY look strange.
✔️ Example: One lucky year = high YoY 📈, but not always the truth!
🎯 4. CAGR = Smoother & Clearer for Long Term!
✔️ Shows real average performance over time.
✔️ Removes temporary ups and downs.
💡 Simple Example to Understand:
A company made profit like this:
✔️ Year 1: ₹100
✔️ Year 2: ₹200 (Wow! +100% YoY!)
✔️ Year 3: ₹150 (Oops! -25% YoY)
If you see YoY, you may feel confused 😕 — up, then down.
But CAGR says:
👉 “Relax! The average growth over 3 years is about 22% CAGR.”
That’s clearer! 😊
⚠️ So What’s Better — CAGR or YoY?
✔️ For short term (1 year performance)? = YoY is useful ✅
✔️ For long term (3+ years)? = CAGR is better ✅
✔️ For understanding consistency? = CAGR is better ✅
✔️ For checking recent improvement or trouble? = YoY is better ✅
🏆 Final Verdict:
✔️ Both are important! 🎯
✔️ Use YoY to see what happened this year.
✔️ Use CAGR to see how the company grew over time.
👉 A smart investor checks both before deciding! 🧐💡
✨ Final Thought:
YoY is like checking your weight change this month 📅.
CAGR is like knowing how your fitness improved over 5 years! 🏋️♂️
For a strong, confident decision — always use both! 💪😊