4288. When Growth Misleads: The CAGR Paradox in Linear Performance Models
Invited abstract in session TC-67: Business Management in Dynamic Emerging Markets, stream Selected Aspects of International Finance and OR.
Tuesday, 10:30-12:00Room: KOL – PC Raum 3
Authors (first author is the speaker)
| 1. | Tomas Macak
|
| Masaryk Institute of Advanced Studies, The Czech Technical University in Prague (CTU) |
Abstract
This paper analyses a paradox in performance evaluation arising when the compound annual growth rate (CAGR) is applied to indicators with different baselines. We study a linear profit model (EBIT(t) = a + bt), and show analytically that the CAGR decreases with the intercept parameter a. Consequently, indicators with smaller baseline values may appear to grow faster despite lower absolute performance. We derive formal conditions under which CAGR rankings are consistent with absolute growth dominance and provide a practical investment example illustrating the potential decision bias.
Keywords
- Finance
- Decision Theory and Analysis
- Performance Measurement
Status: accepted
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