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The Compound Annual Growth Rate (CAGR) is a sophisticated metric used to measure the annualized rate of return of an investment over a specified period of time longer than one year. It smooths out the volatility of returns by assuming the investment grew at a steady rate each year. CAGR is particularly useful for comparing the performance of different investments, understanding historical growth trends, and forecasting future growth potential.

What is CAGR?

Imagine you invested $10,000 in a stock. After 5 years, your investment is worth $25,000. The CAGR helps you understand what the average annual growth rate would have been if your investment had grown at a constant pace each year, ignoring the ups and downs in between. It provides a more stable and comparable measure than simple average returns.

Why Use CAGR?

• Investment Comparison: It allows for a like-for-like comparison of investments with different growth patterns over varying timeframes.
• Performance Evaluation: Businesses use CAGR to assess the growth of revenue, profits, or market share over several years.
• Forecasting: While not a guarantee, CAGR can be used to project future growth based on historical performance.

How is CAGR Calculated?

The formula for CAGR is:

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

CAGR Calculator

Use the calculator below to easily determine the Compound Annual Growth Rate for your investment.

function calculateCAGR() { var beginningValue = parseFloat(document.getElementById("beginningValue").value); var endingValue = parseFloat(document.getElementById("endingValue").value); var numberOfYears = parseFloat(document.getElementById("numberOfYears").value); var resultDiv = document.getElementById("result"); resultDiv.innerHTML = ""; // Clear previous results if (isNaN(beginningValue) || isNaN(endingValue) || isNaN(numberOfYears)) { resultDiv.innerHTML = "Please enter valid numbers for all fields."; return; } if (beginningValue <= 0) { resultDiv.innerHTML = "Beginning Investment Value must be greater than zero."; return; } if (endingValue < 0) { resultDiv.innerHTML = "Ending Investment Value cannot be negative."; return; } if (numberOfYears <= 0) { resultDiv.innerHTML = "Number of Years must be greater than zero."; return; } var cagr = Math.pow((endingValue / beginningValue), (1 / numberOfYears)) – 1; var formattedCAGR = (cagr * 100).toFixed(2); resultDiv.innerHTML = "Compound Annual Growth Rate (CAGR): " + formattedCAGR + "%"; }