1. What is CAGR?

The Compound Annual Growth Rate (CAGR) is a measure of the mean annual growth rate of an investment over a specified time period longer than one year. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.

2. How Does the Calculator Work?

The calculator uses the CAGR formula:

Where:

• \( BV \) — Beginning Value of the investment
• \( EV \) — Ending Value of the investment
• \( n \) — Number of years

Explanation: The formula calculates the constant rate of return that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each year.

3. Importance of CAGR Calculation

Details: CAGR is important because it provides a smoothed annual rate that eliminates the volatility of periodic returns. Investors can compare the CAGR of different investments to evaluate which one performed better over time.

4. Using the Calculator

Tips: Enter the beginning value, ending value, and number of years. All values must be positive numbers. The result will be shown as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between CAGR and average annual return?
A: CAGR accounts for compounding, while average return simply divides total return by number of years. CAGR is generally more accurate for investment growth.

Q2: What are typical CAGR values for investments?
A: Stock market returns average 7-10% CAGR long-term. Higher returns are possible but come with higher risk.

Q3: Can CAGR be negative?
A: Yes, if the ending value is less than the beginning value, CAGR will be negative, indicating a loss.

Q4: What are limitations of CAGR?
A: CAGR doesn't account for volatility or cash flows during the period. It assumes smooth growth which rarely happens in reality.

Q5: How is CAGR used in business?
A: Businesses use CAGR to analyze revenue growth, customer acquisition rates, market expansion, and other metrics over time.