Compound Annual Growth Rate (CAGR) Calculator
Calculate the average annual growth rate of an investment or value over a specified period.
Understanding Compound Annual Growth Rate (CAGR)
The Compound Annual Growth Rate (CAGR) is a useful business and investing specific metric that represents the average annual rate at which an investment or value has grown over a specified period longer than one year. It smooths out volatile returns and provides a more accurate picture of an investment's performance than a simple average.
Why is CAGR Important?
- Smoothed Growth: Unlike simple annual growth rates, CAGR accounts for the compounding effect of returns over multiple periods, providing a more realistic average growth rate.
- Performance Comparison: It allows for easy comparison of the growth of different investments or business segments over varying time frames.
- Forecasting: While past performance doesn't guarantee future results, CAGR can be used as a basis for projecting future growth under similar conditions.
- Investment Analysis: Investors use CAGR to evaluate the performance of mutual funds, stocks, and other assets over several years.
How to Use the CAGR Calculator
Our CAGR calculator simplifies the process of determining this crucial metric. Here's how to use it:
- Starting Value: Enter the initial value of your investment or asset at the beginning of the period. This could be your initial capital, the starting revenue of a company, or the initial value of a portfolio.
- Ending Value: Input the final value of your investment or asset at the end of the period. This is the current or final worth after the growth has occurred.
- Number of Years: Specify the total number of years over which the growth occurred. This period must be at least one year.
Once you've entered these three values, click the "Calculate CAGR" button, and the calculator will instantly display the Compound Annual Growth Rate as a percentage.
Example Scenarios
Let's look at some practical examples:
Example 1: Stock Investment
You invested $10,000 in a stock five years ago. Today, that investment is worth $15,000.
Using the calculator:
- Starting Value: $10,000
- Ending Value: $15,000
- Number of Years: 5
The calculator would show a CAGR of approximately 8.45%.
Example 2: Business Revenue Growth
A small business had annual revenue of $50,000 three years ago. This year, its revenue reached $75,000.
Using the calculator:
- Starting Value: $50,000
- Ending Value: $75,000
- Number of Years: 3
The calculator would show a CAGR of approximately 14.47%.
Example 3: Real Estate Appreciation
You bought a property for $200,000 ten years ago, and its current market value is $350,000.
Using the calculator:
- Starting Value: $200,000
- Ending Value: $350,000
- Number of Years: 10
The calculator would show a CAGR of approximately 5.76%.
CAGR is a powerful tool for understanding the true growth trajectory of various financial metrics over time, providing a clear, annualized rate that accounts for the effects of compounding.