function calculateCAGR() {
var startingValue = parseFloat(document.getElementById("startingValue").value);
var endingValue = parseFloat(document.getElementById("endingValue").value);
var numberOfYears = parseFloat(document.getElementById("numberOfYears").value);
var resultDiv = document.getElementById("cagrResult");
// Reset styling
resultDiv.style.backgroundColor = '#e9f7ef';
resultDiv.style.borderColor = '#d4edda';
resultDiv.style.color = '#155724';
// Input validation
if (isNaN(startingValue) || isNaN(endingValue) || isNaN(numberOfYears)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
resultDiv.style.backgroundColor = '#f8d7da';
resultDiv.style.borderColor = '#f5c6cb';
resultDiv.style.color = '#721c24';
return;
}
if (startingValue <= 0) {
resultDiv.innerHTML = "Starting Value must be greater than zero.";
resultDiv.style.backgroundColor = '#f8d7da';
resultDiv.style.borderColor = '#f5c6cb';
resultDiv.style.color = '#721c24';
return;
}
if (numberOfYears <= 0) {
resultDiv.innerHTML = "Number of Years must be greater than zero.";
resultDiv.style.backgroundColor = '#f8d7da';
resultDiv.style.borderColor = '#f5c6cb';
resultDiv.style.color = '#721c24';
return;
}
if (endingValue < 0) {
resultDiv.innerHTML = "Ending Value cannot be negative for CAGR calculation.";
resultDiv.style.backgroundColor = '#f8d7da';
resultDiv.style.borderColor = '#f5c6cb';
resultDiv.style.color = '#721c24';
return;
}
// CAGR Calculation
var cagr = (Math.pow((endingValue / startingValue), (1 / numberOfYears)) – 1) * 100;
resultDiv.innerHTML = "The Compound Annual Growth Rate (CAGR) is: " + cagr.toFixed(2) + "%";
}
Understanding the Compound Annual Growth Rate (CAGR)
The Compound Annual Growth Rate (CAGR) is a crucial metric for investors and businesses alike, providing a smoothed annual rate of return over a specified period longer than one year. Unlike simple annual growth, CAGR accounts for the compounding effect of returns, meaning it considers that earnings from previous periods can generate their own earnings in subsequent periods. This makes it a more accurate and realistic measure of an investment's or business's growth trajectory over time.
Why is CAGR Important?
CAGR offers several key advantages for financial analysis and planning:
Smoothed Growth: It provides a single, annualized growth rate, making it easier to compare the performance of different investments or business units over varying timeframes. It smooths out volatility, giving a clearer picture of the underlying growth trend.
Investment Performance: Investors use CAGR to evaluate the performance of their portfolios, mutual funds, or individual stocks over several years. It helps in understanding the true average annual return, especially when returns fluctuate significantly year-to-year.
Business Analysis: Businesses use CAGR to analyze revenue growth, market share expansion, or profit increases over a period. It's a key indicator for strategic planning and forecasting.
Benchmarking: CAGR allows for easy comparison against benchmarks or competitors, helping to assess whether an investment or business is performing above or below average.
How is CAGR Calculated?
The formula for Compound Annual Growth Rate is:
CAGR = ((Ending Value / Starting Value)^(1 / Number of Years)) - 1
Where:
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 number of years over which the growth occurred.
The result is typically expressed as a percentage.
Example: Calculating CAGR
Imagine you invested $10,000 in a stock. After 5 years, your investment grew to $16,105.10.
This means your investment grew at an average annual rate of 10% over the five-year period, accounting for compounding.
Using the CAGR Calculator
Our Compound Annual Growth Rate Calculator simplifies this process. Simply input your starting value, the ending value, and the number of years, and the calculator will instantly provide you with the CAGR, helping you quickly assess growth performance.