How Cagr is Calculated

Compound Annual Growth Rate (CAGR) Calculator

function calculateCAGR() { var startingValue = parseFloat(document.getElementById('startingValue').value); var endingValue = parseFloat(document.getElementById('endingValue').value); var numberOfYears = parseFloat(document.getElementById('numberOfYears').value); var resultDiv = document.getElementById('cagrResult'); if (isNaN(startingValue) || isNaN(endingValue) || isNaN(numberOfYears)) { resultDiv.innerHTML = 'Please enter valid numbers for all fields.'; return; } if (startingValue <= 0) { resultDiv.innerHTML = 'Starting Value must be greater than zero.'; return; } if (numberOfYears <= 0) { resultDiv.innerHTML = 'Number of Years must be greater than zero.'; return; } // CAGR Formula: ((Ending Value / Starting Value)^(1 / Number of Years)) – 1 var cagr = (Math.pow((endingValue / startingValue), (1 / numberOfYears)) – 1) * 100; if (isNaN(cagr)) { resultDiv.innerHTML = 'Calculation error. Please check your inputs.'; } else { resultDiv.innerHTML = 'Compound Annual Growth Rate (CAGR): ' + cagr.toFixed(2) + '%'; } }

Understanding Compound Annual Growth Rate (CAGR)

The Compound Annual Growth Rate (CAGR) is a useful metric for calculating the average annual growth rate of an investment or any other value over a specified period longer than one year. It smooths out volatility and provides a more accurate representation of growth than a simple average, as it accounts for the compounding effect.

Why is CAGR Important?

• Smoothed Growth: Unlike simple annual growth rates, CAGR provides a single, consistent growth rate over multiple periods, making it easier to compare the performance of different investments or projects.
• Investment Analysis: Investors use CAGR to evaluate the performance of their portfolios, individual stocks, mutual funds, or other assets over time.
• Business Planning: Businesses can use CAGR to project future revenues, market share, or other key performance indicators, aiding in strategic planning.
• Benchmarking: It allows for a standardized comparison of growth against industry benchmarks or competitors.

How to Calculate CAGR

The formula for Compound Annual Growth Rate is:

CAGR = ((Ending Value / Starting Value)^{(1 / Number of Years)}) – 1

Where:

• Ending Value: The value of the investment or metric at the end of the period.
• Starting Value: The value of the investment or metric at the beginning of the period.
• Number of Years: The total number of years over which the growth occurred.

Example of CAGR Calculation

Let's say you invested $10,000 in a stock, and after 5 years, its value grew to $18,000. To find the CAGR:

1. Starting Value: $10,000
2. Ending Value: $18,000
3. Number of Years: 5

Using the formula:

CAGR = (($18,000 / $10,000)^{(1 / 5)}) – 1
CAGR = (1.8^0.2) – 1
CAGR = 1.1247 – 1
CAGR = 0.1247 or 12.47%

This means your investment grew at an average annual rate of 12.47% over the five-year period, accounting for compounding.

Using the CAGR Calculator

Our CAGR calculator simplifies this process for you. Simply input the following values:

1. Starting Value: Enter the initial value of your investment or metric.
2. Ending Value: Input the final value after the growth period.
3. Number of Years: Specify the total duration in years.

Click "Calculate CAGR," and the tool will instantly provide you with the compound annual growth rate, helping you quickly assess performance and make informed decisions.