How to Calculate Company Growth Rate (CAGR)
The Compound Annual Growth Rate (CAGR) is a popular metric used to measure the
average annual rate of growth of an investment or a business metric (like revenue
or profit) over a specified period longer than one year. It smooths out volatility
and provides a single, representative growth rate.
The formula for CAGR is:
CAGR = ( (Ending Value / Starting Value) ^ (1 / Number of Years) ) – 1
Steps to calculate using this tool:
- Starting Value: Enter the value (e.g., revenue, profit, sales) at the beginning of your chosen period.
- Ending Value: Enter the value at the end of your chosen period.
- Number of Years: Enter the total number of years between the starting and ending values.
- Click "Calculate Growth Rate" to see the annualized growth percentage.
Example:
Suppose a company's revenue was $1,000,000 in Year 1 and $2,500,000 in Year 6.
The period is 5 years (Year 6 – Year 1 = 5 years).
Using the calculator:
Starting Value = 1,000,000
Ending Value = 2,500,000
Number of Years = 5
The calculated CAGR would be approximately 20.11%. This means the company's revenue
grew at an average rate of 20.11% per year over those 5 years.
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function calculateGrowthRate() {
var startingValue = parseFloat(document.getElementById("startingValue").value);
var endingValue = parseFloat(document.getElementById("endingValue").value);
var numberOfYears = parseFloat(document.getElementById("numberOfYears").value);
var resultElement = document.getElementById("result");
resultElement.innerHTML = ""; // Clear previous result
if (isNaN(startingValue) || isNaN(endingValue) || isNaN(numberOfYears)) {
resultElement.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (startingValue <= 0) {
resultElement.innerHTML = "Starting Value must be greater than zero.";
return;
}
if (numberOfYears <= 0) {
resultElement.innerHTML = "Number of Years must be greater than zero.";
return;
}
// Calculate CAGR
var growthRate = Math.pow((endingValue / startingValue), (1 / numberOfYears)) – 1;
if (isNaN(growthRate) || !isFinite(growthRate)) {
resultElement.innerHTML = "Could not calculate growth rate. Please check your inputs.";
return;
}
resultElement.innerHTML = "Compound Annual Growth Rate (CAGR): " + (growthRate * 100).toFixed(2) + "%";
}