Compound Annual Growth Rate Calculator Formula

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Understanding the Compound Annual Growth Rate (CAGR) Formula

The Compound Annual Growth Rate (CAGR) is a vital metric used to measure the average annual growth of an investment or a business metric over a specified period, assuming that profits were reinvested at the end of each year. It smooths out volatility and provides a more representative growth rate than simple average growth. CAGR is particularly useful for comparing the performance of different investments or business units over time.

The formula for CAGR is:

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

Let's break down the components:

  • Beginning Value: This is the initial value of the investment or metric at the start of the period.
  • Ending Value: This is the final value of the investment or metric at the end of the period.
  • Number of Years: This is the total number of years over which the growth is measured.

CAGR is always expressed as a percentage. It provides a clear, annualized view of growth, making it easier to understand the long-term performance and make informed decisions.

CAGR Calculator

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