Calculator For Annual Growth Rate

CAGR Formula:

\[ CAGR = \left( \frac{\text{Ending Value}}{\text{Beginning Value}} \right)^{\frac{1}{\text{Years}}} - 1 \]

CAGR (%):

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1. What is CAGR?

CAGR (Compound Annual Growth Rate) is the mean annual growth rate of an investment over a specified period of time longer than one year. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.

2. How Does the Calculator Work?

The calculator uses the CAGR formula:

\[ CAGR = \left( \frac{\text{Ending Value}}{\text{Beginning Value}} \right)^{\frac{1}{\text{Years}}} - 1 \]

Where:

$ \text{Ending Value} $ — Final value of the investment ($)
$ \text{Beginning Value} $ — Initial value of the investment ($)
$ \text{Years} $ — Investment period in years

Explanation: The formula calculates the constant rate of return that would be required for an investment to grow from its beginning balance to its ending balance, assuming profits were reinvested at the end of each period.

3. Importance of CAGR Calculation

Details: CAGR is widely used to compare the historical returns of different investments, evaluate investment performance, and make informed financial decisions. It smooths out volatility and provides a clear picture of long-term growth.

4. Using the Calculator

Tips: Enter the beginning value, ending value, and number of years. All values must be positive numbers. The result will be displayed as a percentage representing the annual growth rate.

5. Frequently Asked Questions (FAQ)

Q1: What is a good CAGR?
A: A "good" CAGR depends on the investment type and market conditions. Generally, 7-10% is considered good for stock investments, while higher returns carry higher risks.

Q2: How is CAGR different from average annual return?
A: CAGR accounts for compounding effect, while average annual return simply averages yearly returns without considering compounding.

Q3: What are the limitations of CAGR?
A: CAGR doesn't account for investment risk, volatility, or cash flows during the period. It assumes smooth, consistent growth.

Q4: Can CAGR be negative?
A: Yes, if the ending value is less than the beginning value, CAGR will be negative, indicating a loss.

Q5: Is CAGR the same as ROI?
A: No, ROI shows total return over the entire period, while CAGR shows the annualized growth rate.