1. What is Compound Annual Growth Rate (CAGR)?

The Compound Annual Growth Rate (CAGR) is 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:

• \( End \) — Ending value
• \( Begin \) — Beginning value
• \( n \) — Number of periods (typically 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.

3. Importance of CAGR Calculation

Details: CAGR is useful for comparing growth rates from different investments or business metrics over comparable periods. It smooths the progress of growth and ignores volatility.

4. Using the Calculator

Tips: Enter the beginning value, ending value, and number of periods. All values must be positive numbers (begin > 0, end > 0, periods ≥ 1).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between CAGR and average growth rate?
A: CAGR accounts for compounding, while average growth rate simply divides total growth by number of periods without considering compounding effects.

Q2: Can CAGR be negative?
A: Yes, a negative CAGR indicates a loss over the measurement period.

Q3: What are the limitations of CAGR?
A: CAGR doesn't account for investment risk or volatility. It assumes a smooth growth path which rarely happens in reality.

Q4: How is CAGR different from annualized return?
A: They're similar concepts, but annualized return can refer to returns over periods shorter than a year, while CAGR typically refers to multi-year periods.

Q5: Can I use CAGR for periods less than a year?
A: While technically possible, CAGR is most meaningful for periods of a year or more. For shorter periods, other metrics may be more appropriate.