What is the 'Arithmetic Mean'
The arithmetic mean is the simplest and most widely used measure of a mean, or average. It simply involves taking the sum of a group of numbers, then dividing that sum by the count of the numbers used in the series.
For example, take 34, 44, 56 and 78. The sum is 212. The arithmetic mean is 212 divided by four, or 53.
People also use several other types of means, such as the geometric mean, which comes into play in certain situations in finance and investing.
BREAKING DOWN 'Arithmetic Mean'
The arithmetic mean maintains its place in finance, as well. For example, mean earnings estimates typically are an arithmetic mean. Say you want to know the average earnings expectation of the 16 analysts covering a particular stock. Simply add up all the estimates and divide by 16 to get the arithmetic mean.
The same is true if you want to calculate a stock’s average closing price during a particular month. Say there are 23 trading days in the month. Simply take all the prices, add them, up and divide by 23 to get the arithmetic mean.
The arithmetic mean is simple, and most people with even a little bit of finance and math skill can calculate it. It’s also a useful measure of central tendency, as it tends to provide useful results, even with large groupings of numbers.
Limitations of Arithmetic Mean
However, the arithmetic mean isn't always ideal, especially when a single outlier can skew the mean by a large amount. Let’s say you want to estimate the allowance of a group of 10 kids. Nine of them get an allowance between $10 and $12 a week. The tenth kid gets an allowance of $60. That one outlier is going to result in an arithmetic mean of $16. This is not very representative of the group.
In this particular case, the median allowance of the 10 might be a better measure.
The arithmetic mean also isn’t great when calculating the performance of investment portfolios, especially when it involves compounding, or the reinvestment of dividends and earnings. It also generally not used to calculate present and future cash flows, which analysts use in making their estimates. Doing so is almost sure to lead to misleading numbers.
For these applications, analysts tend to use the geometric mean, which is calculated differently. It takes the product of all numbers in the series and raises it to the inverse of the length of the series. It’s easy to calculate in Microsoft Excel using the GEOMEAN function.

Arithmetic Index
Arithmetic index uses an arithmetic sum to determine changes ... 
Geometric Mean
The geometric mean is the average of a set of products  the ... 
Simple Moving Average  SMA
A simple moving average (SMA) is an arithmetic moving average ... 
Mean Return
Mean return, in securities analysis, is the expected value, or ... 
Average Return
The simple mathematical average of a series of returns generated ... 
Adjusted Mean
The adjusted mean accounts for outlines and anomalies in a data ...

Investing
Breaking Down The Geometric Mean
Understanding portfolio performance, whether for a selfmanaged, discretionary portfolio or a nondiscretionary portfolio, is vital to determining whether the portfolio strategy is working or ... 
Trading
CMT Association's Alan Shaw on Logarithmic Charts
After 46 years on Wall Street, retired analyst and CMT Association founder Alan Shaw shares his take on logarithmic versus arithmetic charts. 
Investing
4 Cases to Buy If the Stock Market Is at an AllTime High
Learn about why someone would invest in the stock market, even if it has reached an alltime high. This article will review four cases for doing just that. 
Investing
Investors Need A Good WACC
Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality. 
Investing
5 Smart Tips For Raising Financially Literate Kids
Help your children learn to be financially literate with these strategies. Financial savvy begins with what they learn from their parents. 
Trading
U.S. Steel Stock at Cusp of Historic Breakout
U.S. Steel has rallied back to a longterm trendline that could yield a major breakout in reaction to infrastructure legislation or steel tariffs. 
Retirement
11 Social Security Calculators Worth Your Time
The safest Social Security calculators to use when figuring benefits are on the official website. The best are the ones that access your actual record. 
Trading
Swing Trading Indicators: For Those Too Impatient For Buy And Hold
For investors who are too impatient for the buy and hold strategy, swing trading may be your thingbut seriously, be careful. 
Personal Finance
The Basics of Financial Responsibility
Often people mistake financial responsibility to just paying off credit card debt. Just being able to make your credit card payments doesn't cut it. Find out what does.

The difference between arithmetic and geometric averages
An arithmetic average is the sum of a series of numbers divided by the number of numbers. Geometric average is better for ... Read Answer >> 
What is the historical market risk premium?
Learn what the historical market risk premium is and the different figures that result from an analyst's choice of calculations ... Read Answer >> 
How do 50day, 100day and 200day moving averages differ?
Whether you are using the 50day, 100day or 200day moving average, the method of calculation and how the moving average ... Read Answer >> 
Calculate your portfolio's investment returns
Learn the basic principles underlying the data and calculations used to perform personal rates of return on investment portfolios. Read Answer >> 
How is productivity calculated?
Learn about productivity, what it measures and how to compute a company's productivity level by measuring its outputs relative ... Read Answer >>