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CAGR Formula:
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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 anything that can rise or fall in value over time.
The calculator uses the CAGR formula:
Where:
Explanation: The formula calculates the mean annual growth rate of an investment over a specified period of time, assuming the investment has been compounding over the period.
Details: CAGR is widely used to compare the historical returns of stocks, mutual funds, and other investments. It provides a smoothed annual rate that describes the growth trajectory of an investment, eliminating the effects of volatility.
Tips: Enter the beginning value and ending value in dollars, and the number of years. All values must be valid (values > 0, years between 1-100).
Q1: What is a good CAGR percentage?
A: A "good" CAGR depends on the investment type and market conditions. Generally, a CAGR of 8-12% is considered good for stock investments over the long term.
Q2: How is CAGR different from average annual return?
A: CAGR accounts for compounding effect while average annual return does not. CAGR provides a more accurate representation of investment growth over time.
Q3: 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.
Q4: What are the limitations of CAGR?
A: CAGR doesn't account for investment risk or volatility. It assumes a smooth growth path and doesn't reflect the actual year-to-year fluctuations.
Q5: How is CAGR used in business analysis?
A: Businesses use CAGR to analyze revenue growth, market share expansion, and other key performance indicators over multiple periods.