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NISM Certifications · NISM-Series-XV: Research Analyst · Fundamentals of Research

A company's sales for years 1 and 4 were Rs 200 crore and Rs 345.6 crore respectively. Over this period, what is the compound annual growth rate (CAGR) of sales?

The CAGR is 20%. Sales grew from Rs 200 crore to Rs 345.6 crore over three periods, a ratio of 1.728, which equals 1.2 cubed. Hence the compounded annual growth rate is 20 percent. Counting four periods instead of three would wrongly lower the rate.

  1. A20%Correct
  2. B23.2%
  3. C15.2%
  4. D44%

Explanation

From year 1 to year 4 there are 3 growth periods. 345.6/200 = 1.728 = 1.2^3, so CAGR = 20%. Using 4 periods would give about 15.7%, and simple average growth of 48.8% per 3 years would overstate it.

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