Calculate the Compound Annual Growth Rate (CAGR) of an investment or metric over a period.
Compound Annual Growth Rate (CAGR)
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Understanding CAGR (Compound Annual Growth Rate)
The Compound Annual Growth Rate (CAGR) is a financial metric that measures the mean annual growth rate of an investment or metric over a specified period of time 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 or business metric has performed over time, providing a single, representative growth rate.
CAGR is particularly valuable because it smooths out volatility. For instance, an investment might have a great year followed by a poor one, but CAGR provides a consistent annual rate that reflects the overall trend. It's widely used in financial analysis, business planning, and investment performance tracking.
The CAGR Formula
The formula to calculate CAGR is as follows:
CAGR = ( (Ending Value / Starting Value) ^ (1 / Number of Years) ) - 1
Let's break down the components:
Ending Value: The value of the investment or metric at the end of the period.
Starting Value: The value of the investment or metric at the beginning of the period.
Number of Years: The total duration of the investment period in years.
The result of this formula is a decimal. To express it as a percentage, you multiply it by 100.
How to Use the Calculator
To use this CAGR Growth Calculator:
Enter the Starting Value of your investment or metric.
Enter the Ending Value of your investment or metric after the specified period.
Enter the Number of Years over which this growth occurred.
Click the "Calculate CAGR" button.
The calculator will then display the Compound Annual Growth Rate as a percentage.
Example Calculation
Let's say you invested $10,000 in a stock five years ago, and today it's worth $25,000.
Starting 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
As a percentage, this is 0.2011 * 100 = 20.11%.
This means your investment grew at an average rate of 20.11% per year, compounded annually, over the five-year period.
When to Use CAGR
CAGR is useful for:
Evaluating the historical performance of investments (stocks, mutual funds, real estate).
Comparing the growth rates of different investments or companies.
Forecasting future growth based on historical trends (with caution).
Assessing the growth of business metrics like revenue, profit, or customer base.
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 startingValueInput = document.getElementById("startingValue");
var endingValueInput = document.getElementById("endingValue");
var numberOfYearsInput = document.getElementById("numberOfYears");
var resultDiv = document.getElementById("result");
var resultValueDiv = document.getElementById("result-value");
var startingValue = parseFloat(startingValueInput.value);
var endingValue = parseFloat(endingValueInput.value);
var numberOfYears = parseFloat(numberOfYearsInput.value);
// Input validation
if (isNaN(startingValue) || isNaN(endingValue) || isNaN(numberOfYears)) {
alert("Please enter valid numbers for all fields.");
return;
}
if (startingValue <= 0) {
alert("Starting value must be greater than zero.");
return;
}
if (endingValue < 0) {
alert("Ending value cannot be negative.");
return;
}
if (numberOfYears <= 0) {
alert("Number of years must be greater than zero.");
return;
}
var cagr = Math.pow((endingValue / startingValue), (1 / numberOfYears)) – 1;
var cagrPercentage = cagr * 100;
// Display the result
resultValueDiv.innerText = cagrPercentage.toFixed(2); // Display with 2 decimal places
resultDiv.style.display = "block";
}