The compound annual growth rate, or CAGR for short, is the average rate at which some value (investment) grows over a certain period of time assuming the value has been compounding over that time period.
Know more about CAGR
The formula for CAGR is:
CAGR = ( EV / SV)1 / n – 1
EV = Investment’s ending value
SV = Investment’s starting value
n = Number of investment periods (months, years, etc.)
We can use the formula above to calculate the CAGR.
Assume an investment’s starting value is $1,000 and it grows to $10,000 in 3 years. The CAGR calculation is as follows:
CAGR = (10000/1000)1 / 3 – 1
CAGR = 1.1544
Hence, CAGR percentage = CAGR x 100 = 1.1544 x 100 = 115.44 %
Calculation of CAGR with Excel
The compound annual growth are applied at various places of personal finance. It is often used to calculate the average growth of single investment over a certain period. CAGR can be applied in comparing return on equity with bonds or saving accounts. Further, it can be used to compare the performance of two companies and forecasting their future growth based on their historical data.
CAGR doesn’t accounts for volatility. It calculates only the average percentage return and so CAGR values should never taken as only tool for investment return assessment.
CAGR Calculator is free online tool to calculate compound annual growth rate for your investment over a time period. To get the CAGR value for your investment, enter the starting value or initial investment amount along with the expected ending value and the number of months or years for which you want to calulate the CAGR. Next, click on calculate button and let the online CAGR calculator calculate the value for you. It tells you, how much your intial investment has grown over the selected course of time along with bar chart for more clear picture of your annually or periodically growth.