Compound Annual Growth Rate
(CAGR)

Calculate the growth rate of an investment over a period of time. Explanation of CAGR (Compound Annual Growth Rate).

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CAGR - Compound Annual Growth Rate

What is CAGR? Description

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.

CAGR Special Interest Group

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CAGR Forum

Recent User Comments

    			 
              - Saudi Arabia
  	       
  		     CAGR Example
  	  		 "If the Net profit for Year 2004 is 350 million and for Year 2008 is 600 million, what will be the CAGR?"
  			   
    	  		 0

    			 
              - India
  	       
  		     CAGR Formula
  	  		 "How is 1/n to the power calculated for CAGR? How does it needs to be considered for arriving at CAGR?"
  			   
    	  		 0

    			 
  			   Minilek Kefale - Ethiopia
  	       
  		     CAGR and Employment Growth
  	  		 "Can CAGR measure employment growth or generation of enterprises?"
  			   
    	  		 0

    			 
  			   Prafull - India
  	       
  		     Basis of CAGR
  	  		 "For a company, generally CAGR is stated. So what is normally taken as a base for that? Profits? Capital? Something else?"
  			   
    	  		 0

    			 
  			   Pankaj - Nepal
  	       
  		     CAGR
  	  		 "If net profit for year 2000 is -ve 200million and for year 2004 is 400million, then what will be the CAGR?"
  			   
    	  		 5

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CAGR Education & Events

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

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12manage for:

	● Jinesh (India)	Finance	"Generally we can find out the C.A.G.R. for any thing but for the company the capital remains the same through thye life time so we should go for the profit as a base because if we want to find out the actual growth we generally measure the profit of the company"
	● Nitin (India)	CAGR Basis	"CAGR is taken in terms of sales not profit."

	● John (UK)	Calculate CAGR	"(400/200)^(1/4) - 1 = (2)^(0,25) - 1 = 1,18 - 1 = 0,18"
	● (India)	CAGR	"OK"

Compound Annual Growth Rate (CAGR)