1. What is Compound Annual Growth Rate?

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:

• New Value — Ending value
• Old Value — Beginning value
• Years — Time period in years

Explanation: The formula calculates the smoothed annualized gain of an investment over time, assuming the investment grows at a steady rate each year.

3. Importance of CAGR Calculation

Details: CAGR is important because it provides a clearer picture of investment performance over time compared to simple average returns. It's widely used to compare historical returns of stocks, mutual funds, and other investments.

4. Using the Calculator

Tips: Enter the old value (starting amount), new value (ending amount), and the time period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between CAGR and average return?
A: CAGR accounts for compounding while average return doesn't. CAGR shows the geometric average return while simple average shows arithmetic average.

Q2: What are typical CAGR values for investments?
A: Stock market averages about 7-10% CAGR long-term. Higher-risk investments may have higher CAGRs but with more volatility.

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

Q4: What are limitations of CAGR?
A: CAGR doesn't account for investment risk, volatility, or cash flows during the period. It assumes smooth growth.

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