Compound Average Growth Rate Calculator

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Compound Annual Growth Rate (CAGR) Calculator

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The Compound Annual Growth Rate is:

function calculateCAGR() { var start = parseFloat(document.getElementById('initialValue').value); var end = parseFloat(document.getElementById('finalValue').value); var years = parseFloat(document.getElementById('numYears').value); var resultDiv = document.getElementById('cagrResult'); var valueDiv = document.getElementById('cagrValue'); var analysisDiv = document.getElementById('cagrAnalysis'); if (isNaN(start) || isNaN(end) || isNaN(years) || start <= 0 || years <= 0) { alert("Please enter valid positive numbers. Beginning value and years must be greater than zero."); return; } var cagr = (Math.pow((end / start), (1 / years)) – 1) * 100; var totalGain = ((end – start) / start) * 100; valueDiv.innerHTML = cagr.toFixed(2) + "%"; analysisDiv.innerHTML = "An investment growing from " + start + " to " + end + " over " + years + " years represents a total absolute return of " + totalGain.toFixed(2) + "%. The CAGR reflects the mean annual growth rate over this specified time period, assuming the profits were reinvested at the end of each year."; resultDiv.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 accounts for the effect of compounding, providing a "smoothed" annual rate of return.

The CAGR Formula

The math behind CAGR involves taking the nth root of the total return, where 'n' is the number of years in the period. The formula is expressed as:

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

How to Use the CAGR Calculator

  1. Beginning Value: Enter the initial amount of the investment or the starting value of the metric you are tracking.
  2. Ending Value: Enter the final amount at the end of the period.
  3. Number of Years: Input the duration of time between the beginning and ending values.

Practical Example

Imagine you invested 5,000 in a stock portfolio. After 3 years, the portfolio is worth 7,500. While the total growth is 50%, the CAGR tells you the specific annual growth rate required to reach that end goal.

  • Beginning Value: 5,000
  • Ending Value: 7,500
  • Years: 3
  • CAGR calculation: [(7,500 / 5,000) ^ (1/3)] – 1 = 14.47%

This means your investment grew at an average rate of 14.47% every year for three years.

Why CAGR Matters

CAGR is a superior metric for comparing different investments (like stocks vs. bonds or real estate) because it eliminates the volatility of year-to-year fluctuations. It provides a standard baseline to evaluate performance over time, though it is important to remember that CAGR does not reflect investment risk or the actual volatility experienced during the period.

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