Compound Annual Growth Rate
(CAGR)

Knowledge Center

   

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

Contents

Premium

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


Special Interest Group (58 members)


CAGR Forum  

Recent topics

  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.
     
 
  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?...
     
 
  How to Calculate CAGR if the Beginning Data is negative (minus)?
How to calculate CAGR in the following case:
Profit in year 2011: 1200
Profit in year 2010: 1400
Profit in year 2009: - 500....
     
 

Best Practices - CAGR
  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?...
     
 
  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?...
     
 
  CAGR and Employment Growth
Can CAGR measure employment growth or generation of enterprises?...
     
 

Expert Tips - CAGR
 

7 Limitations of CAGR

 
 



Advance yourself in business administration and management



Resources - CAGR

CAGR Calculator

 

CAGR Diagram

 

CAGR: How to Calculate with a Calculator

 

CAGR: How to Calculate in MS Excel

 
 

News about Cagr Investment


     
 

News about Cagr Return


     
 

Videos about Cagr Investment


     
 

Videos about Cagr Return


     
 

Presentations about Cagr Investment


     
 

Presentations about Cagr Return


     
 

Books about Cagr Investment


     
 

Books about Cagr Return


     
 

More about Cagr Investment


     
 

More about Cagr Return


     



Accelerate your management career



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


Return to Management Hub: Finance & Investing


More Management Methods, Models and Theory

Special Interest Group Leader

 


About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
© 2018 12manage - The Executive Fast Track. V15.0 - Last updated: 14-11-2018. All names ™ of their owners.