Understanding Compound Annual Growth Rate (CAGR)
The Compound Annual Growth Rate (CAGR) is a metric that represents the mean annual growth rate of an investment or metric over a specified period of time longer than one year. It smooths out volatility and gives you a more accurate picture of long-term growth than simple year-over-year percentage changes.
CAGR is particularly useful for:
- Investment Analysis: Comparing the performance of different investments over time.
- Business Performance: Tracking the growth of revenue, profit, or user base.
- Financial Planning: Projecting future values based on historical growth trends.
The formula for CAGR is:
CAGR = [(Ending Value / Starting Value) ^ (1 / Number of Years)] – 1
The result is typically expressed as a percentage.
How to Use the Calculator:
- Starting Value: Enter the initial value of your investment or metric at the beginning of the period.
- Ending Value: Enter the final value of your investment or metric at the end of the period.
- Number of Years: Enter the total number of years over which the growth occurred.
- Click "Calculate CAGR" to see the compound annual growth rate.
Example:
Let's say you invested $10,000 (Starting Value) in a stock, and after 5 years (Number of Years), its value grew to $20,000 (Ending Value).
Using the calculator:
- Starting Value: 10000
- Ending Value: 20000
- Number of Years: 5
The calculated CAGR would show you the average annual rate at which your investment grew over those 5 years, accounting for compounding. In this scenario, the CAGR is approximately 14.87%. This means that, on average, your investment grew by 14.87% each year, compounding annually, to reach $20,000 from $10,000 in 5 years.
function calculateCAGR() {
var initialValue = parseFloat(document.getElementById("initialValue").value);
var finalValue = parseFloat(document.getElementById("finalValue").value);
var numberOfYears = parseFloat(document.getElementById("numberOfYears").value);
var resultDiv = document.getElementById("calculatorResult");
if (isNaN(initialValue) || isNaN(finalValue) || isNaN(numberOfYears)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (initialValue <= 0) {
resultDiv.innerHTML = "Starting Value must be greater than zero.";
return;
}
if (numberOfYears <= 0) {
resultDiv.innerHTML = "Number of Years must be greater than zero.";
return;
}
var cagr = Math.pow((finalValue / initialValue), (1 / numberOfYears)) – 1;
var cagrPercentage = (cagr * 100).toFixed(2);
resultDiv.innerHTML = "The Compound Annual Growth Rate (CAGR) is:
";
}
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