How Do You Calculate Sales Tax Rate – Cost Calculator

Compound Annual Growth Rate (CAGR) Calculator

Beginning Value:

Ending Value:

Number of Years:

Your Compound Annual Growth Rate (CAGR) will appear here.

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, assuming that profits are reinvested at the end of each year. It's a way to smooth out volatility and understand the growth trajectory of an investment as if it grew at a steady rate each year.

Why is CAGR Important?

Consistency: CAGR provides a single, smoothed-out rate that represents the growth over time, making it easier to compare investments with different volatility patterns.
Forecasting: It can be used to project future values of an investment based on its historical performance.
Performance Evaluation: CAGR is a valuable tool for evaluating the performance of an investment, a business, or a portfolio over multiple periods.

How to Calculate CAGR

The formula for CAGR is:

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 over which the investment grew.

Example Calculation

Let's say you invested $10,000 in a stock at the beginning of 2018. By the end of 2022 (a period of 5 years), your investment has grown to $25,000. To calculate the CAGR:

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 or 20.11%

This means your investment grew at an average annual rate of approximately 20.11% over the 5-year period.

Limitations of CAGR

While useful, CAGR doesn't show the year-to-year volatility of an investment. An investment might have had large swings but ended up with a high CAGR, or it might have grown steadily. It's often best used in conjunction with other metrics to get a complete picture.

function calculateCAGR() { var beginningValue = parseFloat(document.getElementById("beginningValue").value); var endingValue = parseFloat(document.getElementById("endingValue").value); var numberOfYears = parseFloat(document.getElementById("numberOfYears").value); var resultDiv = document.getElementById("result"); if (isNaN(beginningValue) || isNaN(endingValue) || isNaN(numberOfYears) || beginningValue <= 0 || endingValue < 0 || numberOfYears <= 0) { resultDiv.innerHTML = "Please enter valid positive numbers for all fields."; return; } var cagr = Math.pow((endingValue / beginningValue), (1 / numberOfYears)) – 1; // Format the result to be displayed as a percentage var formattedCAGR = (cagr * 100).toFixed(2); resultDiv.innerHTML = "Your Compound Annual Growth Rate (CAGR) is: " + formattedCAGR + "%"; }