CAGR Calculator Compound Annual Growth Rate

But generally speaking, investors will evaluate this by thinking about their opportunity cost as well as the riskiness of the investment. For example, if a company grew by 25% in an industry with an average CAGR closer to 30%, then its results might seem lackluster by comparison. But if the industry-wide growth rates were lower, such as 10% or 15%, then its CAGR might be very impressive. Compounded Annual Growth Rate (CAGR) is the rate of return that would be required for an investment to grow from the initial value invested to the maturity balance. However, CAGR assumes that the gains are reinvested at the end of each investment period.

Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing. Calculating the CAGR for various options is beneficial how to calculate cagr in normal calculator if you want to invest a lump sum. Using XIRR to make an investment decision is more accurate if you’re investing at different times. This means your mutual fund investment gave you an absolute return of 75% over its tenure.

Calculate CAGR

Contrary to a common misconception, the calculation of CAGR is not as simple as averaging the YoY growth rates. The first step in calculating CAGR is to determine the beginning value of the investment. This is the value of the investment at the start of the period you want to calculate. For example, if you want to calculate the CAGR of an investment over a 5-year period, you need to determine the value of the investment at the beginning of that 5-year period. There are various factors in the market that can influence the growth rate of an investment, thus making it difficult to interpret the year to year
growth.

A 5-year CAGR percentage indicates how much the investment has grown in the past 5 years. Again, the Rule of 72 is an estimate — but it’s often a quite good estimate. A Rule of 72 calculation would imply a required CAGR of 7.2% to double one’s money in ten years; the actual figure is 7.18%. For seven years, the Rule of 72 suggests a 10.3% return, against 10.4% by the proper calculation.The Rule of 72 only works when considering an ending value that’s double the beginning value. But for back-of-the-envelope CAGR calculations, the Rule of 72 is a handy rule indeed.

What is the Compound Annual Growth Rate (CAGR)?

In this way, comparing the CAGRs of measures within a company reveals strengths and weaknesses. In any given year during the period, one investment may be rising while the other falls. This could be the case when comparing high-yield bonds to stocks, or a real estate investment to emerging markets. Using CAGR would smooth the annual return over the period so the two alternatives would be easier to compare. Scripbox’s CAGR calculator helps an investor to calculate CAGR on their investments which in turn will help them in analyzing their investment decisions.

Consequently, the CAGR may be used to give a clarification on the progress of an investment. The rate can also be used to compare the growth of more than
one investment. You only need to enter the initial value, the final deal, and desired investment period, and the online CAGR calculator will take care of the rest. To compare bank offers which have different compounding periods, we need to calculate the Annual Percentage Yield, also called Effective Annual Rate (EAR). The most comfortable way to figure it out is using the APY calculator, which estimates the EAR from the interest rate and compounding frequency.

Step 8: Multiply the Result from Step 7 by 100

It also allows investors to see how similar investments have fared over the same length of time. If you’re in need of a financial advisor, the CAGR formula can help you compare advisors and see who is getting their clients the most for their money. One of the greatest limitations of the compound annual growth rate is that it ignores volatility. Thus, it is not advisable to use
CAGR as the only metric to determine an investment’s performance. Compound annual growth rate (CAGR) is a business and investment term that is used to refer to the average annual growth rate of an investment over a
certain period of time, usually longer than one year. It can be explained as a measure of growth of an investment based on the assumption that the
investment’s value grows at a steady rate, compounded annually.

Get instant access to video lessons taught by experienced investment bankers. Learn financial statement modeling, DCF, M&A, LBO, Comps and Excel shortcuts. To ensure that you understand the concept of CAGR, we have also computed the implied revenue, which we link to the $100 million assumption for Year 0 and then grow it by the CAGR of 7.6%.