Home
Back
CAGR Formula:
| From: | To: |
The Compound Annual Growth Rate (CAGR) is a measure of 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 investments that can rise or fall in value over time.
The calculator uses the CAGR formula:
Where:
Explanation: The formula calculates the constant rate of return that would be required for an investment to grow from its initial balance to its ending balance, assuming the profits were reinvested at the end of each period.
Details: CAGR is widely used to compare the historical returns of different investments, analyze business performance metrics, and forecast future growth based on historical data. It smooths the rate of return and provides a clearer picture of investment performance.
Tips: Enter the final amount in currency, principal amount in currency, and time period in years. All values must be valid (amounts > 0, time > 0).
Q1: What is a good CAGR value?
A: A good CAGR depends on the investment type and market conditions. Generally, higher CAGR indicates better performance, but it should be compared against relevant benchmarks.
Q2: Does CAGR account for volatility?
A: No, CAGR smooths out investment returns and does not reflect the volatility or risk involved in achieving those returns.
Q3: Can CAGR be negative?
A: Yes, if the final amount is less than the principal amount, the CAGR will be negative, indicating a loss over the investment period.
Q4: What are the limitations of CAGR?
A: CAGR assumes a smooth growth pattern 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 average annual return simply averages the yearly returns without considering compounding.