Compound Annual Growth Rate ( CAGR ) Calculator

It is the golden rule to make good decisions quickly, which is no different in the investment and finance-related industry. If you are a shareholder, an entrepreneur, or simply an interested spectator in financial growth, reading CAGR – which stands for Compound Annual Growth Rate- might help you evaluate your investments. But how is it possible to calculate it most efficiently? That is why you will find a CAGR growth calculator, the stock CAGR calculator, and the CAGR calculator for stocks beneficial.

If you want to know the progress of your portfolio or the efficiency of a business investment, often it is helpful to use a CAGR calculator to do calculations. Whether it is an online CAGR calculator, an India CAGR calculator or an exploring CAGR formula calculator, the options are limitless. Read on if you want to learn how to calculate CAGR return or need help using a CAGR final value calculator. You may be interested in our monthly CAGR calculator or the computation formula for the experienced CAGR rate. You’re in the right place.

This piece also offers a general understanding of CAGR return apart from giving the reader a CAGR formula, a guide on calculating CAGR together with a CAGR example, and some frequently asked questions, such as how CAGR is calculated. Let’s dive in!

Suppose you have invested in stocks or mutual funds and would like to determine how much money has been made annually for a particular period. That is where the Compound Annual Growth Rate (CAGR) comes into play and becomes your best friend. Compared to regular averages, CAGR considers one more parameter – compounding, where the profits are reinvested and additional profit is obtained. It is an honest and accurate method of establishing the growth performance of an investment tool, which makes it very significant when it comes to the appraisal of growth.

The Compound Annual Growth Rate (CAGR) full formula is:

CAGR = [(EV / BV)^(1/n)] - 1

Here

EV is the ending value of investment.

BV is the beginning value of investment.

n is the number of years.

Each investment scheme described by the Compound Annual Growth Rate represents how an investment would have been compounded every year and if the money was being invested back into the profits then earned. It is very similar to how one would think of a rosy scenario. To our surprise, investments are only sometimes on a constant rise. However, a CAGR facilitates making the returns easier to comprehend by presenting a more gradual picture of how the returns might have developed if all went well. It is more helpful to make comparisons to understand the investment and its standing in the market.

Investors can use the CAGR calculator to get valuable information about their investments. Investors can apply this tool in a few ways:

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To better understand the concept of CAGR, let's consider an example involving the growth of a specific industry over a period of five years.

For instance, the sector's total revenue was ₹1000 crore in 2019, and at the end of 2024, it was ₹ 3000 crore. By using these imaginary figures, let's calculate the CAGR to determine the average annual growth rate.

Using the CAGR formula:

CAGR = [(EV / BV)^(1/n)] - 1

where:

EV = Ending Value (INR 3,000 crore)

BV = Beginning Value (INR 1,000 crore)

n = Number of years (5 years)

Calculating the CAGR:

CAGR = [(3,000 / 1,000)^(1/5)] - 1

= 1.2457 - 1

= 0.2457 or 24.57%

Therefore, the CAGR of the e-commerce sector in India during this period was approximately 24.57%.

Here are the differences between Growth Rate and CAGR.

A negative CAGR means an investment or business's value decreases during a fixed period. This shows that the Living Standard has been declining, implying that the average annual growth rate has been negative. Therefore, the investment or business value has declined rather than grown. The decline may occur due to a poor economic rationale for an investment or the current economic cycle being weaker than when the investment was made.

Risk-adjusted CAGR is a figure among financial metrics that considers the volatility of an investment or a portfolio when figuring the average annual compound growth rate. As seen below, the integrated risk aspect gives a better asset valuation than the traditional models.

Risk-adjusted CAGR considers an investment's risk, its dispersion, and the downside deviation of an investment along with its returns. It assists the investors in determining the prospective return on investment, considering the amount of risk that arises. This metric is most suitable when an investor compares different investments in various risk classes.

By incorporating risk into the CAGR calculation, investors can gain insights into the trade-off between returns and risk. Investments with higher risk may yield higher returns, but they also carry a greater potential for losses. Conversely, lower-risk investments may offer more stable returns but with lower growth potential.

Various risk-adjusted measures are used in the financial industry, such as the Sharpe ratio, Sortino ratio, and Treynor ratio. These ratios consider factors such as volatility, downside risk, and the risk-free rate of return to adjust the CAGR calculation and provide a more accurate representation of risk-adjusted growth.

Using risk-adjusted CAGR allows investors to make more informed decisions by considering returns and risk together.

This table highlights the key differences between CAGR and Absolute Returns. 

The CAGR Calculator is a helpful tool. Let’s quickly look at the benefits of using an online CAGR Calculator:

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.