Annual Compound Growth Rate Calculator

CAGR Formula:

\[ CAGR = \left( \frac{\text{End Value}}{\text{Start Value}} \right)^{\frac{1}{\text{Years}}} - 1 \times 100\% \]

CAGR:

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1. What is Compound Annual Growth Rate (CAGR)?

Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified time period longer than one year. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.

2. How Does the Calculator Work?

The calculator uses the CAGR formula:

\[ CAGR = \left( \frac{\text{End Value}}{\text{Start Value}} \right)^{\frac{1}{\text{Years}}} - 1 \times 100\% \]

Where:

\( \text{End Value} \) — Final value of the investment
\( \text{Start Value} \) — Initial value of the investment
\( \text{Years} \) — Number of years over which growth occurred

Explanation: CAGR smooths the growth rate as if the investment had grown at a steady rate on an annually compounded basis.

3. Importance of CAGR Calculation

Details: CAGR is widely used to compare the historical returns of different investments, evaluate business performance, and forecast future growth. It eliminates the volatility of periodic returns and provides a smoothed annual growth rate.

4. Using the Calculator

Tips: Enter the starting value, ending value, and number of years. All values must be positive numbers. The result will show the compound annual growth rate as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What is a good CAGR percentage?
A: A "good" CAGR depends on the industry and investment type. Generally, 8-12% is considered good for stock investments, while higher rates may indicate exceptional performance.

Q2: How is CAGR different from average annual return?
A: CAGR accounts for compounding effect, while average annual return simply averages the yearly returns. CAGR provides a more accurate representation of growth over time.

Q3: Can CAGR be negative?
A: Yes, if the ending value is less than the starting value, CAGR will be negative, indicating a decline in value over the period.

Q4: What are the limitations of CAGR?
A: CAGR assumes smooth growth and doesn't account for volatility or intermediate cash flows. It may not reflect the actual year-to-year performance.

Q5: How is CAGR used in business planning?
A: Businesses use CAGR to analyze revenue growth, market expansion, and investment returns over multiple periods for strategic decision-making.