Calculate the Compound Annual Growth Rate of your investments.
Your Compound Annual Growth Rate (CAGR) is: –
What is CAGR and How is it Calculated?
The Compound Annual Growth Rate (CAGR) is a financial metric that measures the mean annual rate of return on an investment over a specified period longer than one year. It represents the smoothed-out rate of return, assuming that profits were reinvested at the end of each year of the investment's lifespan. CAGR is a useful way to understand how an investment has grown over time, providing a more stable picture than simple average returns, which can be skewed by volatility.
CAGR is particularly valuable for comparing the performance of different investments over the same time frame, even if their individual year-to-year returns varied significantly. It helps investors make more informed decisions by providing a standardized measure of growth.
The CAGR Formula
The formula to calculate CAGR is as follows:
CAGR = ( (Ending Value / Starting Value) ^ (1 / Number of Years) ) - 1
Where:
Ending Value: The value of the investment at the end of the period.
Starting Value: The value of the investment at the beginning of the period.
Number of Years: The total number of years the investment was held.
CAGR in Excel
You can implement the CAGR formula directly in Microsoft Excel or Google Sheets. Assuming your Starting Value is in cell A1, your Ending Value is in cell B1, and the Number of Years is in cell C1, the Excel formula would look like this:
=(((B1/A1)^(1/C1))-1)
To display this as a percentage, format the cell containing the formula with the 'Percentage' number format.
When to Use CAGR
CAGR is best used for:
Evaluating the historical performance of an investment portfolio.
Comparing the growth rates of different assets or companies over the same period.
Forecasting potential future growth based on historical trends (use with caution).
Assessing the effectiveness of investment strategies.
It's important to remember that CAGR is a historical measure and does not guarantee future results. It also doesn't account for the risk or volatility associated with an investment.
function calculateCAGR() {
var startingValue = parseFloat(document.getElementById("startingValue").value);
var endingValue = parseFloat(document.getElementById("endingValue").value);
var numberOfYears = parseFloat(document.getElementById("numberOfYears").value);
var cagrResultElement = document.getElementById("cagrResult");
if (isNaN(startingValue) || isNaN(endingValue) || isNaN(numberOfYears)) {
cagrResultElement.textContent = "Please enter valid numbers for all fields.";
cagrResultElement.style.color = "#dc3545";
return;
}
if (startingValue <= 0) {
cagrResultElement.textContent = "Starting value must be positive.";
cagrResultElement.style.color = "#dc3545";
return;
}
if (endingValue < 0) {
cagrResultElement.textContent = "Ending value cannot be negative.";
cagrResultElement.style.color = "#dc3545";
return;
}
if (numberOfYears <= 0) {
cagrResultElement.textContent = "Number of years must be positive.";
cagrResultElement.style.color = "#dc3545";
return;
}
var cagr = Math.pow((endingValue / startingValue), (1 / numberOfYears)) – 1;
if (isNaN(cagr)) {
cagrResultElement.textContent = "Calculation error. Check inputs.";
cagrResultElement.style.color = "#dc3545";
} else {
cagrResultElement.textContent = (cagr * 100).toFixed(2) + "%";
cagrResultElement.style.color = "#004a99"; /* Professional blue for result */
}
}