How is Cagr Calculated

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CAGR Calculator body { font-family: 'Segoe UI', Tahoma, Geneva, Verdana, sans-serif; background-color: #f8f9fa; color: #333; line-height: 1.6; margin: 0; padding: 0; display: flex; justify-content: center; align-items: flex-start; min-height: 100vh; } .loan-calc-container { background-color: #ffffff; margin: 30px auto; padding: 30px; border-radius: 8px; box-shadow: 0 4px 15px rgba(0, 0, 0, 0.1); width: 100%; max-width: 800px; box-sizing: border-box; } h1, h2 { color: #004a99; text-align: center; margin-bottom: 20px; } .input-group { margin-bottom: 20px; display: flex; flex-direction: column; align-items: flex-start; } .input-group label { display: block; margin-bottom: 8px; font-weight: 600; color: #555; } .input-group input[type="number"], .input-group input[type="text"] { width: calc(100% – 24px); /* Adjust for padding */ padding: 12px; border: 1px solid #ccc; border-radius: 4px; font-size: 1rem; box-sizing: border-box; } .input-group input[type="number"]:focus, .input-group input[type="text"]:focus { border-color: #004a99; outline: none; box-shadow: 0 0 0 3px rgba(0, 74, 153, 0.2); } button { display: block; width: 100%; padding: 12px 20px; background-color: #004a99; color: white; border: none; border-radius: 4px; font-size: 1.1rem; font-weight: bold; cursor: pointer; transition: background-color 0.3s ease; margin-top: 10px; } button:hover { background-color: #003a7e; } #result { margin-top: 30px; padding: 20px; background-color: #e7f3ff; border-left: 5px solid #28a745; border-radius: 4px; text-align: center; } #result h2 { color: #004a99; margin-bottom: 10px; font-size: 1.5rem; } #result-value { font-size: 2.5rem; font-weight: bold; color: #28a745; } #result-description { font-size: 0.9rem; color: #666; margin-top: 10px; } .article-section { margin-top: 40px; padding-top: 30px; border-top: 1px solid #eee; } .article-section h2 { text-align: left; color: #004a99; margin-bottom: 15px; } .article-section p, .article-section ul, .article-section li { margin-bottom: 15px; } .article-section ul { padding-left: 20px; } .article-section strong { color: #004a99; } /* Responsive adjustments */ @media (max-width: 600px) { .loan-calc-container { margin: 15px; padding: 20px; } h1 { font-size: 1.8rem; } button { font-size: 1rem; } #result-value { font-size: 2rem; } }

CAGR Calculator

Calculate the Compound Annual Growth Rate (CAGR) to understand the average annual growth of an investment or business metric over a specified period.

Compound Annual Growth Rate (CAGR)

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What is CAGR?

The Compound Annual Growth Rate (CAGR) is a financial metric used to determine the average annual rate of return of an investment over a specified period of time, assuming that the profits were reinvested at the end of each year. CAGR is often used to compare the historical performance of different investments or to project future growth rates.

It smooths out the volatility of year-to-year returns, providing a more representative picture of growth. CAGR is particularly useful for investments that have fluctuating returns, as it gives a clear indication of the overall trend.

How is CAGR Calculated?

The formula for CAGR is as follows:

CAGR = [(Ending Value / Beginning 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.
  • Beginning Value: The value of the investment or metric at the start of the period.
  • Number of Years: The total number of years over which the growth occurred.

The formula essentially calculates the geometric progression that would yield the same growth rate over the specified period.

When to Use CAGR

CAGR is a versatile metric applicable in various financial and business contexts:

  • Investment Performance: Comparing the growth of stocks, mutual funds, or other investment portfolios over multiple years.
  • Business Growth: Tracking the annual growth rate of revenue, profits, customer base, or other key business metrics.
  • Forecasting: Using historical CAGR to project future performance, though this should be done with caution as past performance is not indicative of future results.
  • Valuation: Assisting in the valuation of companies by estimating their growth potential.

Example Calculation

Suppose you invested $10,000 in a stock (Beginning Value) which grew to $25,000 (Ending Value) over 5 years (Number of Years).

Using the CAGR formula:

CAGR = [($25,000 / $10,000)^(1 / 5)] – 1

CAGR = [(2.5)^(0.2)] – 1

CAGR = [1.2011] – 1

CAGR = 0.2011 or 20.11%

This means your investment grew at an average rate of approximately 20.11% per year over the 5-year period.

function calculateCAGR() { var beginningValueInput = document.getElementById("beginningValue"); var endingValueInput = document.getElementById("endingValue"); var numberOfYearsInput = document.getElementById("numberOfYears"); var resultValueDiv = document.getElementById("result-value"); var resultDescriptionDiv = document.getElementById("result-description"); var beginningValue = parseFloat(beginningValueInput.value); var endingValue = parseFloat(endingValueInput.value); var numberOfYears = parseFloat(numberOfYearsInput.value); // Clear previous results and descriptions resultValueDiv.innerText = "–"; resultDescriptionDiv.innerText = ""; // Input validation if (isNaN(beginningValue) || isNaN(endingValue) || isNaN(numberOfYears)) { resultDescriptionDiv.innerText = "Please enter valid numbers for all fields."; return; } if (beginningValue <= 0) { resultDescriptionDiv.innerText = "Beginning Value must be greater than zero."; return; } if (endingValue < 0) { resultDescriptionDiv.innerText = "Ending Value cannot be negative."; return; } if (numberOfYears <= 0) { resultDescriptionDiv.innerText = "Number of Years must be greater than zero."; return; } // CAGR Calculation var ratio = endingValue / beginningValue; var exponent = 1 / numberOfYears; var cagr = Math.pow(ratio, exponent) – 1; // Format the result var formattedCAGR = (cagr * 100).toFixed(2); var formattedCAGRPercent = formattedCAGR + "%"; resultValueDiv.innerText = formattedCAGRPercent; resultDescriptionDiv.innerText = "This is the Compound Annual Growth Rate over " + numberOfYears + " years."; }

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