1. What is Compound 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:

• \( End \) — Ending value (USD)
• \( Begin \) — Beginning value (USD)
• \( n \) — Number of years

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

3. Importance of CAGR Calculation

Details: CAGR is important because it provides a single growth rate that describes the trajectory of an investment as if it had grown at a steady rate. This makes it easier to compare different investments.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between CAGR and average annual return?
A: CAGR accounts for compounding while average annual return does not. CAGR provides a geometric average rather than arithmetic average.

Q2: What are good CAGR values?
A: This depends on the asset class. For stocks, 7-10% is typically considered good long-term performance. For startups, investors might expect 30%+ CAGR.

Q3: What are limitations of CAGR?
A: CAGR doesn't account for volatility or risk. It assumes smooth growth, which rarely happens in reality. It also doesn't consider cash flows during the period.

Q4: Can CAGR be negative?
A: Yes, if the ending value is less than the beginning value, CAGR will be negative, indicating a loss over the period.

Q5: How is CAGR used in business?
A: Businesses use CAGR to analyze revenue growth, customer growth, market expansion, and to compare performance across different time periods or competitors.