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Compound Annual Growth Rate (CAGR) Calculator

.calculator-container { font-family: sans-serif; border: 1px solid #ccc; padding: 20px; border-radius: 8px; max-width: 500px; margin: 20px auto; background-color: #f9f9f9; } .calculator-inputs { margin-bottom: 20px; } .input-row { margin-bottom: 15px; display: flex; justify-content: space-between; align-items: center; } .input-row label { margin-right: 10px; font-weight: bold; flex-basis: 60%; } .input-row input[type="number"] { padding: 8px; border: 1px solid #ccc; border-radius: 4px; width: 40%; box-sizing: border-box; } .calculator-container button { background-color: #4CAF50; color: white; padding: 10px 15px; border: none; border-radius: 4px; cursor: pointer; font-size: 16px; width: 100%; margin-top: 10px; } .calculator-container button:hover { background-color: #45a049; } .calculator-result { margin-top: 20px; padding: 15px; border: 1px solid #ddd; border-radius: 4px; background-color: #eef; text-align: center; font-size: 18px; font-weight: bold; } function calculateCAGR() { var beginningValue = parseFloat(document.getElementById("beginningValue").value); var endingValue = parseFloat(document.getElementById("endingValue").value); var numberOfYears = parseFloat(document.getElementById("numberOfYears").value); var resultElement = document.getElementById("cagrResult"); if (isNaN(beginningValue) || isNaN(endingValue) || isNaN(numberOfYears) || beginningValue <= 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((endingValue / beginningValue), (1 / numberOfYears)) – 1; var cagrPercentage = (cagr * 100).toFixed(2); resultElement.innerHTML = "The Compound Annual Growth Rate (CAGR) is: " + cagrPercentage + "%"; }

Understanding Compound Annual Growth Rate (CAGR)

The Compound Annual Growth Rate (CAGR) is a crucial metric used to measure the average annual growth rate of an investment over a specified period longer than one year. It smooths out the volatility of returns by calculating an equivalent constant rate of return that would have resulted in the same final value from the initial value.

Why CAGR is Important:

  • Provides a Smoothed Growth Rate: Unlike simple average returns, CAGR accounts for compounding, giving a more accurate picture of long-term performance.
  • Facilitates Comparisons: It allows investors and analysts to compare the performance of different investments, projects, or businesses on an apples-to-apples basis.
  • Useful for Forecasting: While not a guarantee of future results, CAGR can be a useful tool for making informed projections about future growth.

How to Calculate CAGR:

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 over which the growth is measured.

The result of this formula is a decimal, which is then typically multiplied by 100 to express it as a percentage.

Example:

Let's say you invested $10,000 in a stock portfolio five years ago, and today its value 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

Expressed as a percentage:

CAGR = 0.2011 * 100 = 20.11%

This means that, on average, your investment grew by 20.11% each year over the five-year period.

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