Calculate Compound Annual Growth Rate Excel

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function calculateCAGR() { var initialValue = parseFloat(document.getElementById("initialValue").value); var finalValue = document.getElementById("finalValue").value; var numberOfYears = document.getElementById("numberOfYears").value; var resultElement = document.getElementById("result"); resultElement.innerHTML = ""; // Clear previous results if (isNaN(initialValue) || isNaN(finalValue) || isNaN(numberOfYears) || initialValue <= 0 || numberOfYears <= 0) { resultElement.innerHTML = "Please enter valid positive numbers for all fields."; return; } // CAGR formula: ((Ending Value / Beginning Value) ^ (1 / Number of Years)) – 1 var cagr = Math.pow((finalValue / initialValue), (1 / numberOfYears)) – 1; var cagrPercentage = cagr * 100; resultElement.innerHTML = "

Compound Annual Growth Rate (CAGR)

The CAGR is: " + cagrPercentage.toFixed(2) + "%"; }

Understanding Compound Annual Growth Rate (CAGR)

The Compound Annual Growth Rate (CAGR) is a financial metric that measures the average annual rate of return of an investment over a specified period of time longer than one year. It smooths out volatility and provides a single, representative growth rate for a period. CAGR is particularly useful for comparing the performance of different investments or for understanding the historical growth of a business metric.

How is CAGR Calculated?

The formula for CAGR is as follows:

CAGR = ((Ending Value / Beginning Value) ^ (1 / Number of Years)) - 1

Where:

  • Ending Value: The value of the investment at the end of the period.
  • Beginning Value: The value of the investment at the beginning of the period.
  • Number of Years: The total number of years in the period.

The result is then typically multiplied by 100 to express it as a percentage.

Why Use CAGR?

CAGR is a valuable tool for several reasons:

  • Smooths Volatility: It provides a consistent growth rate, ignoring the year-to-year fluctuations that can occur with investments.
  • Performance Comparison: It allows for straightforward comparison of the historical performance of different investments, projects, or business metrics over the same time frame.
  • Forecasting: While not a predictor of future results, CAGR can be used to project potential future values based on historical growth trends.
  • Business Valuation: Companies often use CAGR to report on revenue, profit, or customer growth over time.

Example Calculation:

Let's say an investment started with a value of $10,000 (Beginning Value) and grew to $25,000 (Ending Value) over 5 years (Number of Years).

  • Beginning Value = 10,000
  • Ending Value = 25,000
  • Number of Years = 5

Using the formula:

CAGR = ((25,000 / 10,000) ^ (1 / 5)) - 1

CAGR = (2.5 ^ 0.2) - 1

CAGR = 1.2011 - 1

CAGR = 0.2011

As a percentage, the CAGR is 20.11%.

Limitations of CAGR:

It's important to note that CAGR is a historical measure and does not account for the risk taken to achieve those returns. It also doesn't reflect the actual year-by-year performance, which might have involved significant ups and downs.

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