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Compound Annual Growth Rate (CAGR)

CAGR

Term category: Finance/Accounting

In 10 words or less: The compounding rate of return over a period.

Definition: The compound annual growth rate (CAGR) is the rate at which an investment grows annually to reach a given end value.  It's calculated by the following:

CAGR =

[(Ending Value/Beginning Value)^(1/# of years)] -1

Advice: CAGR is a great way to figure out the rate of return given only a couple details.  For example, if I said I invested $1000 in 1990 and had $1700 in 2005, I can use this equation to figure out that that is a 3.6% CAGR.

CAGR's are commonly used in financial statement analysis.

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