Calculating Compound Annual Growth Rate in Excel

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function calculateCAGR() { var start = parseFloat(document.getElementById('beginningValue').value); var end = parseFloat(document.getElementById('endingValue').value); var periods = parseFloat(document.getElementById('numPeriods').value); var resultBox = document.getElementById('resultBox'); var resultDisplay = document.getElementById('cagrResult'); var excelDisplay = document.getElementById('excelFormula'); if (isNaN(start) || isNaN(end) || isNaN(periods) || start <= 0 || periods <= 0) { alert("Please enter valid positive numbers. Beginning value and periods must be greater than zero."); return; } // CAGR Formula: [(Ending Value / Beginning Value)^(1 / Number of Periods)] – 1 var cagr = Math.pow((end / start), (1 / periods)) – 1; var cagrPercentage = (cagr * 100).toFixed(2); resultDisplay.innerHTML = cagrPercentage + "%"; excelDisplay.innerHTML = "=(( " + end + " / " + start + " ) ^ ( 1 / " + periods + " )) – 1"; resultBox.style.display = "block"; }

What is Compound Annual Growth Rate (CAGR)?

The 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 growth rates, CAGR provides a smoothed rate of return, essentially showing what an investment would have yielded if it had grown at a steady rate each year on a compounded basis.

How to Calculate CAGR in Excel

Excel does not have a specific function named "CAGR," but there are three distinct ways to calculate it using standard functions and mathematical operators.

Method 1: The Manual Mathematical Formula

You can use the universal CAGR formula directly in any Excel cell. The syntax is:

=((End_Value / Start_Value) ^ (1 / Periods)) - 1

Example: If your initial investment in cell A1 is 10,000, your final value in cell B1 is 20,000, and the duration in cell C1 is 5 years, the formula would be: =((B1/A1)^(1/C1))-1. Remember to format the cell as a "Percentage."

Method 2: Using the RRI Function

The RRI function is designed specifically to return an equivalent interest rate for the growth of an investment. It is the cleanest way to find CAGR in modern Excel versions.

=RRI(nper, pv, fv)

• nper: The number of periods (years).
• pv: Present Value (Beginning Value).
• fv: Future Value (Ending Value).

Method 3: Using the RATE Function

The RATE function is typically used for annuities but works perfectly for CAGR if you omit the payment argument.

=RATE(nper, , -pv, fv)

Note: You must enter the Present Value (pv) as a negative number in the RATE function to represent an outflow of cash.

Why CAGR Matters in Financial Analysis

• Smoothes Volatility: Investments rarely grow at a constant rate. CAGR "ignores" the yearly ups and downs and provides a single, comparable figure.
• Better Comparisons: It allows you to compare the performance of two different asset classes (like real estate vs. stocks) over identical time frames.
• Goal Tracking: Investors use CAGR to determine if their current portfolio growth is on track to meet long-term retirement or savings goals.

Real-World Example

Imagine you invested 5,000 in a tech stock. After 3 years, the stock is worth 8,500. While the total return is 70%, the annual growth varies each year. To find the CAGR:

1. Divide Ending Value by Beginning Value: 8,500 / 5,000 = 1.7
2. Raise to the power of (1/periods): 1.7 ^ (1/3) = 1.1935
3. Subtract 1: 1.1935 – 1 = 0.1935 or 19.35%

This means your investment grew at a compounded rate of 19.35% annually.