Calculate CAGR

What is CAGR?

CAGR stands for Compound Annual Growth Rate. It is a measure of the annual growth rate of an investment over a specific period, assuming that the investment has grown at a steady rate each year.

How is CAGR calculated?

CAGR is calculated by taking the nth root of the total growth rate, where n is the number of years. The total growth rate is obtained by dividing the final value of the investment by the initial value, raising it to the power of 1/n, and subtracting 1. The result represents the average annual growth rate over the given period.

What is the importance of CAGR?

CAGR is important because it provides a standardized way to measure and compare the growth rates of different investments over various periods. It helps investors understand the annualized returns of an investment and make informed decisions based on long-term performance rather than short-term fluctuations.

Is CAGR the same as average annual return?

No, CAGR is not the same as average annual return. CAGR accounts for the compounding effect by assuming a steady growth rate, while average annual return calculates the arithmetic mean of the annual returns without considering compounding. CAGR provides a more accurate representation of investment performance over time.

Can CAGR be negative?

Yes, CAGR can be negative if the investment has experienced an overall decline in value over the given period. Negative CAGR indicates a negative average annual growth rate, which means the investment has lost value on average each year.

What are the limitations of CAGR?

While CAGR is a useful metric, it has some limitations. CAGR assumes a constant growth rate, which may not reflect the actual volatility and fluctuations in the investment's value. It also doesn't account for the timing and magnitude of individual returns, which can significantly impact investment outcomes.

How can CAGR be used in investment analysis?

CAGR can be used to compare the performance of different investments over the same period. It allows investors to assess the growth rates and long-term potential of various investment options. CAGR can also be used to evaluate the performance of a portfolio or benchmark it against a market index.

Can CAGR predict future investment returns?

No, CAGR cannot predict future investment returns with certainty. It is based on historical data and assumes that the past growth rate will continue in the future. However, market conditions can change, and investment returns are subject to various factors that cannot be accurately predicted using CAGR alone.

Is online CAGR tool a free tool?

Yes, online CAGR tool is totally free to use.