CAGR Calculator

CAGR Calculator – Calculate Annual Growth Rate

CAGR (Compound Annual Growth Rate) is one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time. It is a business and investing term for the geometric progression ratio that provides a constant rate of return over the time period.

What is CAGR?

In simple terms, CAGR tells you what an investment yielded on an annually compounded basis. It smoothes out the volatility of returns over a period. For example, if your investment grew by 10% in Year 1, fell by 5% in Year 2, and grew by 20% in Year 3, the simple average return might be misleading. CAGR gives you the steady rate at which your investment grew from the beginning balance to the ending balance.

How to Use the CAGR Calculator?

Using this calculator is simple. You need just three values:

• Beginning Value: The initial amount you invested.
• Ending Value: The final value of the investment at the end of the period.
• Duration: The time period in years.

The calculator instantly computes the CAGR percentage, which helps you compare the performance of different assets like mutual funds, stocks, or real estate.

CAGR Formula

The formula for calculating CAGR is:

CAGR = (Ending Value / Beginning Value)^(1 / n) - 1

• Ending Value: Future value of the investment
• Beginning Value: Present value of the investment
• n: Number of years

CAGR vs Absolute Return

Absolute Return is the simple growth percentage (Ending Value - Beginning Value) / Beginning Value. It does not account for the time period. For example, a 100% return over 10 years is very different from a 100% return over 2 years.

CAGR takes the time factor into account, making it a much better metric for comparing investments held for different durations.

Benefits of Using CAGR

• Standardization: It allows you to compare the performance of different investments on a level playing field.
• Long-term View: It filters out short-term market volatility and gives a clear picture of long-term growth.
• Planning: It helps in setting realistic expectations for future growth based on historical performance.

Disclaimer: This CAGR Calculator is for informational purposes only. It assumes that the investment growth was steady, which is rarely the case in real markets. Past performance indicated by CAGR does not guarantee future results.