CAGR Calculator
Compound Annual Growth Rate:
0.00%How to Calculate Compound Annual Growth Rate in Excel 2010
The Compound Annual Growth Rate (CAGR) represents the mean annual growth rate of an investment over a specified period of time longer than one year. It is one of the most accurate ways to determine returns for anything that can rise or fall in value over time.
While modern versions of Excel have specific functions like RRI, users of Excel 2010 typically use the mathematical formula to get the most accurate result.
The CAGR Formula
The mathematical formula for CAGR is:
CAGR = [(Ending Value / Beginning Value) ^ (1 / Number of Years)] – 1
Step-by-Step Excel 2010 Instructions
To calculate this in an Excel 2010 spreadsheet, follow these steps:
- Enter your Beginning Value in cell A1 (e.g., 1000).
- Enter your Ending Value in cell B1 (e.g., 2500).
- Enter the Number of Years in cell C1 (e.g., 5).
- In cell D1, enter the following formula:
=((B1/A1)^(1/C1))-1
After hitting Enter, make sure to format cell D1 as a Percentage to see the growth rate correctly.
Alternative: Using the RATE Function
Excel 2010 also allows the use of the RATE function, which is designed for annuities but works perfectly for CAGR if you treat the values as a single lump sum payment:
=RATE(C1, 0, -A1, B1)
Note: In the RATE function, the Beginning Value must be entered as a negative number (representing an initial investment/outflow).
Real-World Example
Suppose you invested $5,000 in a stock portfolio. After 3 years, the portfolio is worth $7,500. To find the CAGR:
- Beginning Value: 5,000
- Ending Value: 7,500
- Periods: 3
Using the formula: ((7500 / 5000) ^ (1 / 3)) – 1 = 14.47%. This means your investment grew by an average of 14.47% every year for three years.