Calculate CAGR: A Simple Guide to Compound Annual Growth Rate

How to Calculate CARG

CARG stands for Compound Annual Rate Growth that is more often abbreviated as CAGR. CAGR typically represents an annual rate of the investment growth calculated over several years. It is also used to characterize the growth of other elements of business such as a number of clients or product sales. CAGR is computed with the formula CAGR=[(Ending Value/ Starting Value)^(1/ Number of years)]-1. As example, calculate CAGR if you invested $20,000 in 2005 and ended up with a portfolio of $25,000 in 2009.

The Steps

Step 1

Subtract the starting year from the ending one to calculate the investment duration. Number of years= ending year-starting year In our example, number of years=2009-2005=4

Step 2

Divide one by the number of years. 1/number of years. In our example, it would be 1/4=0.25.

Step 3

Divide the ending value by Starting Value and raise the quotient in the power of the number from Step 2. In our example, it would be ($25,000/$20,000) ^0.25= 1.0574.

Step 4

Subtract one from the number obtained in Step 3 and multiply by 100 percent to get CAGR in percents. In our example, CAGR=(1.0574-1) x 100 percent=5.74 percent.