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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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