geometric mean business definition

A measure of central tendency that is frequently used when changes in a variable are relative. The geometric mean is calculated by taking the nth root of the product of n variables. For example, you wish to calculate the mean return when the stock market has produced annual returns during the last three years of 25%, -10%, and 18%. In this case the geometric mean is calculated by taking the cube root of 1.25 × 0.90 × 1.18. Also called mean. Compare arithmetic mean.