CAGR Calculator

Understanding CAGR

CAGR (Compound Annual Growth Rate) represents the mean annual growth rate of an investment over a specified time period. It provides a "smoothed out" growth rate that accounts for compound growth.

How to Calculate CAGR

Use the formula:

CAGR = (Final Value / Initial Value)^(1/n) - 1

where:

• Final Value = Investment value at the end
• Initial Value = Investment value at start
• n = Number of years

Example

Let's calculate the CAGR for a $10,000 investment that doubles every year for 5 years:

Initial Value = $10,000

Final Value = $20,000

n = 5 years

CAGR = (20,000 / 10,000)^(1/5) - 1

CAGR = 0.14

Interpretation

The CAGR of this investment is 0.14%, indicating a 14.87% year-over-year growth rate. This means that the investment has grown by 14.87% annually, on average, over the 5-year period.

Applications

• Comparing different investments over the same time period
• Analyzing investment performance over multiple years
• Understanding year-over-year growth rate
• Evaluating historical performance of investments

Formula

When to Use CAGR

• Comparing different investments over the same time period
• Analyzing investment performance over multiple years
• Understanding year-over-year growth rate
• Evaluating historical performance of investments