Compound Annual Growth Rate (CAGR) Calculator

What is Compound Annual Growth Rate (CAGR)?

Compound Annual Growth Rate (CAGR) is a measure of the average annual growth rate of an investment over a specified time period. It provides a "smoothed" growth rate that accounts for the compounding effect of growth. CAGR is widely used to describe the growth rate of investments, revenue, or other financial metrics over time.

The CAGR Formula

The formula for calculating CAGR is:

\[CAGR = \left(\frac{End Value}{Start Value}\right)^{\frac{1}{n}} - 1\]

Where:

• End Value = Final investment value
• Start Value = Initial investment value
• n = Number of years

Step-by-Step CAGR Calculation

1. Divide the End Value by the Start Value.
2. Take the nth root of the result, where n is the number of years.
3. Subtract 1 from the result.
4. Convert to a percentage by multiplying by 100.

Example Calculation

Let's calculate the CAGR for an investment that grew from $10,000 to $15,000 over 5 years:

1. \(\frac{End Value}{Start Value} = \frac{15000}{10000} = 1.5\)
2. \(1.5^{\frac{1}{5}} = 1.0845\)
3. \(1.0845 - 1 = 0.0845\)
4. \(0.0845 \times 100 = 8.45\%\)

The CAGR for this investment is 8.45%.

Visual Representation

This graph illustrates the steady growth represented by CAGR. Each bar shows the value at the end of each year, growing at a constant rate of 8.45% annually.