Growth Per Year Calculator

CAGR Formula:

\[ CAGR = \left( \frac{End}{Start} \right)^{\frac{1}{Years}} - 1 \]

CAGR:

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1. What is Compound Annual Growth Rate (CAGR)?

Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified time period 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:

\[ CAGR = \left( \frac{End\ Value}{Start\ Value} \right)^{\frac{1}{Years}} - 1 \]

Where:

\( End\ Value \) — Final value of the investment
\( Start\ Value \) — Initial value of the investment
\( Years \) — Number of years over which growth occurred

Explanation: CAGR smooths the growth rate as if the investment had grown at a steady rate on an annually compounded basis.

3. Importance of CAGR Calculation

Details: CAGR is widely used to compare the historical returns of different investments, evaluate business performance, and forecast future growth. It eliminates the volatility of periodic returns and provides a smoothed annual growth rate.

4. Using the Calculator

Tips: Enter the start value and end value in dollars, and the number of years over which the growth occurred. All values must be positive numbers.

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 rates may indicate exceptional performance.

Q2: Does CAGR account for volatility?
A: No, CAGR shows the smoothed annual growth rate and doesn't reflect the volatility or risk experienced during the investment period.

Q3: Can CAGR be negative?
A: Yes, if the end value is less than the start value, CAGR will be negative, indicating a loss over the period.

Q4: What are the limitations of CAGR?
A: CAGR assumes constant growth and doesn't account for intermediate cash flows, volatility, or the timing of returns.

Q5: How is CAGR different from average annual return?
A: CAGR accounts for compounding effect, while simple average return doesn't. CAGR is generally more accurate for long-term growth measurement.