1. What Is The Formula To Calculate CAGR?

The Compound Annual Growth Rate (CAGR) is a useful measure of growth over multiple time periods. 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:

Where:

• Ending Value — Final value of the investment
• Beginning Value — Initial value of the investment
• n — Number of years

Explanation: The formula calculates the mean annual growth rate of an investment over a specified time period longer than one year.

3. Importance of CAGR Calculation

Details: CAGR provides a smoothed annual rate that describes the growth trajectory of an investment as if it had grown at a steady rate. It's widely used in finance and business to compare the historical returns of different investments.

4. Using The Calculator

Tips: Enter the beginning value, ending value, and number of years. All values must be positive numbers (beginning value > 0, ending value > 0, years ≥ 1).

5. Frequently Asked Questions (FAQ)

Q1: What does CAGR represent?
A: CAGR represents the mean annual growth rate of an investment over a specified time period, assuming the investment grows at a constant rate each year.

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

Q3: What are the limitations of CAGR?
A: CAGR doesn't account for investment risk or volatility. It assumes a smooth growth path, which rarely happens in reality.

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

Q5: How is CAGR used in investment analysis?
A: CAGR is used to compare performance of different investments, evaluate mutual funds, and assess business growth rates over time.