Compound Annual Growth Rate

false Encyclopedic articles belong at Wikipedia Compound Annual Growth Rate Compound Annual Growth Rate (CAGR) is a financial measure used to describe the average annual rate at which an investment, business, or other quantity grows over a specified period. CAGR assumes that the value grows at a constant annual rate and that the growth is compounded. Formula The standard CAGR formula is: Where: = Final Value = Initial Value = Number of years The result can be multiplied by 100 to express CAGR as a percentage. Example Suppose an investment grows from $10,000 to $15,000 over five years. The CAGR is calculated as: This produces an annualized growth rate that summarizes the growth from the initial value to the final value over five years. Uses of CAGR CAGR can be used to: Compare investment growth over different periods Summarize long-term growth Analyze business revenue growth Compare financial performance Understand annualized investment returns Limitations CAGR does not show the fluctuations that occurred during the period. Two investments can have the same CAGR while having very different year-to-year performance. CAGR is therefore a useful summary measure, but it should not be treated as a complete description of investment performance. See also Compound interest Present value Future value Return on investment