Compound Annual Growth Rate
(CAGR)

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What is CAGR?

Compound Annual Growth Rate is the average annual growth rate of an investment over a specified period of time.
 

Calculation of Compound Annual Growth Rate. Formula

CAGR is calculated by taking the Nth root of the total percentage growth rate where N is the Number of Years in the period being considered.

CAGR = ( ( End Value / Begin Value )^{(1 / N )} ) - 1

Usage of CAGR. Applications

• Calculating and communicating the average returns of investment funds.
• Demonstrating and comparing the performance of investment advisors.
• Compare the historical returns of stocks with Bonds or with a savings account.

Strengths of CAGR. Benefits

• It is a useful formula to evaluate how various investments or a portfolio has performed over time.
• Can be used for comparing and for evaluating the performance of one stock against other stocks in a peer group or against a market index.

Limitations of CAGR. Disadvantages

• CAGR assumes that an investment grew at a steady rate. In reality there is volatility: investment results can vary significantly over time. This volatility, or investment risk, is important to consider when one makes an investment decision.
• CAGR is a historical measure. Historical results are not always a reliable indicator of expected returns in the future.
• CAGR is sensitive to the period which you consider and it can be easily manipulated: an investment fund may tell you that it achieved an impressive CAGR of 35% over the last three years, but the Begin Value may be taken at a the lowest point that the fund ever had.

Assumptions of Compound Annual Growth Rate. Conditions

• CAGR assumes that an investment grows at a steady pace. This is normally not the reality. Therefore CAGR is an imaginary conception. It describes the growth of an investment as though it had grown at a steady pace.

Forum Forum discussions about the Compound Annual Growth Rate. CAGR Calculation - Example 1 How to calculate CAGR for these export figures? Export figures are for: 2005: Rs. 1205 cr. 2006: Rs. 995 cr. 2007: Rs. 1025 cr. 2008: Rs. 1150 cr.... 15   1 comments Compound Annual Growth Rate: CAGR Formula How is 1/n to the power calculated for CAGR? How does it needs to be considered for arriving at CAGR?... 5   Basis of Compound Annual Growth Rate (CAGR) For a company, generally CAGR is stated. So what is normally taken as a base for that? Profits? Capital? Something else?... 4   2 comments 🔥 How to Calculate CAGR if there is a Loss in the First Year? How to calculate CAGR in the following case: Profit in year 2018: 1200 Profit in year 2017: 1400 Profit in year 2006: - 500. Thanks for your suggestions...... 3   1 comments Start a new topic about the Compound Annual Growth Rate Sign up for free

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Best Practices The best, top-rated topics about the Compound Annual Growth Rate. Here you will find the most valuable ideas and practical suggestions. 🥇 CAGR Calculation - Example 2 If net profit for year 2000 is 200 million and for year 2004 is 400 million, then what will be the CAGR?... 11   4 comments

Expert Tips Advanced insights about the Compound Annual Growth Rate. Here you will find professional advices by experts. Consultancy Tips Teaching Tips Practical Implementation Tips 7 Limitations of CAGR Applying CAGR to Assess the Quality of a Firm's Management Compound Annual Growth Rate (CAGR) is a number which provides an average yearly growth rate for an investment over time....

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Compare with CAGR: Return on Investment  |  Net Present Value  |  Discounted Cash Flow

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