How to Calculate CAGR if there is a Loss in the First Year?

How to Calculate CAGR if there is a Loss in the First Year?

🔥NEW 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...

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Anonymous

Calculating CAGR if there is a Loss in the First Year

You can’t calculate that. Why not?
Let’s look at the formula for calculating CAGR:

CAGR = (ending amount / beginning amount)^{(1 / # of years)} – 1

Mathematically, because you’re taking a root of a number, if you have a negative beginning amount and a positive ending amount, you’d be taking the root of a negative number. Unless you have an odd # of years, you can’t compute this mathematically without going into imaginary numbers

The best way to deal with situations where you have a negative initial value is to just footnote it and calculate CAGR based on the first positive initial value you have. So, in your example, you had a project that lost 500 in year 2016, then gained 1400 in year 2017, and ended in year 2018 with 1200, you might write the following:

Revenues went down from 1400 to 1200 during the period 2017-2018 (CAGR of -14.29%). Note that this excludes the initial 2016 year, when the project lost 500.