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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.
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Recent topics
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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.
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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 i...
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CAGR Calculator
Calculate CAGR
Simple CAGR calculator...
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CAGR Diagram
Calculate the Growth Rate of Investments
Download and edit this 12manage PowerPoint graphic for limited personal, educational and business us...
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CAGR: How to Calculate with a Calculator
Using a Calculator to Find the CAGR
Step by step explanation of how to use a calculator to calculate the CAGR ....
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CAGR: How to Calculate in MS Excel
Calculating CAGR with Excel
Explanation of how to calculate the Compound Annual Growth Rate in Microsoft Excel....
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Compare with CAGR: Return on Investment
| Net Present Value |
Discounted Cash Flow
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