Financial Calculators

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) || startingValue <= 0 || numberOfYears endingValue && numberOfYears === 0) { resultDiv.innerHTML = "CAGR cannot be calculated for a decrease over zero years."; return; } if (startingValue === 0 && endingValue > 0) { resultDiv.innerHTML = "CAGR is undefined when starting value is zero and ending value is positive."; return; } if (startingValue === 0 && endingValue === 0) { resultDiv.innerHTML = "CAGR is undefined when both starting and ending values are zero."; return; } if (startingValue < 0 || endingValue < 0) { resultDiv.innerHTML = "Starting and Ending Values should not be negative."; return; } var cagr = (Math.pow((endingValue / startingValue), (1 / numberOfYears)) – 1) * 100; if (isFinite(cagr)) { resultDiv.innerHTML = "Your Compound Annual Growth Rate (CAGR) is: " + cagr.toFixed(2) + "%"; } else { resultDiv.innerHTML = "Cannot calculate CAGR with the given inputs. Please check values."; } }

Understanding the Compound Annual Growth Rate (CAGR)

The Compound Annual Growth Rate (CAGR) is a useful metric for evaluating the performance of an investment or business over a specified period. Unlike simple annual growth, CAGR accounts for the compounding effect, meaning it considers that earnings from previous periods can generate their own earnings in subsequent periods.

What is CAGR?

CAGR represents the average annual rate at which an investment grows over a specified period, assuming the profits are reinvested at the end of each year. It smooths out volatile returns and provides a more accurate picture of an investment's consistent growth trajectory than simple average growth rates.

Why is CAGR Important?

• Performance Comparison: CAGR allows you to compare the growth of different investments over varying time frames. For example, you can compare the performance of two stocks over five years, even if their annual returns fluctuated significantly.
• Trend Analysis: It helps in understanding the underlying growth trend of a business or asset, providing insights into its historical performance and potential future trajectory.
• Goal Setting: Investors can use CAGR to project future values of their investments based on historical growth rates, aiding in financial planning and goal setting.

How to Use This Calculator

Our CAGR calculator simplifies the process of determining this crucial financial metric. Here's how to use it:

1. Initial Investment ($): Enter the starting value of your investment or asset. This is the value at the beginning of your chosen period.
2. Final Value ($): Input the ending value of your investment or asset. This is the value at the end of your chosen period.
3. Investment Period (Years): Specify the number of years over which the growth occurred.

Once you've entered these values, click "Calculate CAGR" to instantly see the compound annual growth rate of your investment.

Example Scenario:

Imagine you invested $10,000 in a mutual fund five years ago. Today, that investment is worth $15,000. To find out the average annual growth rate your investment achieved, you would input:

• Initial Investment: $10,000
• Final Value: $15,000
• Investment Period: 5 Years

The calculator would then show you that your investment had a CAGR of approximately 8.45%. This means, on average, your investment grew by 8.45% each year over the five-year period, assuming all returns were reinvested.