Calculating Cagr

CAGR Calculator

Compound Annual Growth Rate

function calculateCAGR() { var start = parseFloat(document.getElementById('initialValue').value); var end = parseFloat(document.getElementById('finalValue').value); var years = parseFloat(document.getElementById('numYears').value); var resultBox = document.getElementById('cagrResult'); var valueDisplay = document.getElementById('cagrValue'); var summaryDisplay = document.getElementById('cagrSummary'); if (isNaN(start) || isNaN(end) || isNaN(years) || start <= 0 || years <= 0) { alert("Please enter valid positive numbers. Beginning value and years must be greater than zero."); return; } var cagr = (Math.pow((end / start), (1 / years)) – 1) * 100; valueDisplay.innerText = cagr.toFixed(2) + "%"; summaryDisplay.innerText = "Your investment grew from " + start + " to " + end + " over " + years + " years."; resultBox.style.display = 'block'; }

Compound Annual Growth Rate (CAGR) is one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time. Unlike simple returns, CAGR accounts for the effect of compounding, providing a "smoothed" annual rate of return.

What is CAGR?

CAGR represents the mean annual growth rate of an investment over a specified period of time longer than one year. It represents the rate at which an investment would have grown if it had grown at a steady rate each year and the profits were reinvested at the end of each year.

The CAGR Formula

CAGR = [(Ending Value / Beginning Value)^(1 / Number of Years)] – 1

Practical Example of CAGR Calculation

Imagine you invested $5,000 in a stock portfolio in 2018. By 2023 (5 years later), your portfolio is worth $8,500. While the total return is 70%, the annual growth varies each year. To find the CAGR:

1. Divide the ending value by the beginning value: 8,500 / 5,000 = 1.7
2. Raise the result to the power of 1 divided by the number of years: 1.7^(1/5) ≈ 1.112
3. Subtract 1: 1.112 – 1 = 0.112 or 11.2%

This means your investment grew at a compounded rate of 11.2% annually.

Why Use CAGR?

• Comparing Investments: It allows you to compare a volatile stock against a steady bond or savings account on an apples-to-apples basis.
• Evaluating Performance: Business owners use CAGR to track the growth of various business metrics like revenue or market share over several years.
• Smoothing Volatility: Because markets are volatile, annual returns are rarely consistent. CAGR ignores the "noise" and provides a single growth figure.

Limitations to Consider

While CAGR is a powerful metric, it has limitations. It assumes the growth rate was constant (smooth) over the period, which is rarely the case in reality. It also does not account for when an investor adds or withdraws funds from the portfolio during the time period; for those scenarios, Internal Rate of Return (IRR) is often a better metric.