Compound Annual Growth Rate (CAGR) Calculator
Use our free Compound Annual Growth Rate (CAGR) calculator to evaluate the compound annualized rate of growth in a financial metric.
What is Compound Annual Growth Rate?
The compound annual growth rate (CAGR) is a measure of a company's average annual rate of growth for a financial metric. The CAGR is expressed as a percentage and accounts for the compounding effect by carrying over the financial gains and losses from year-to-year.
CAGR Formula
Formula
CAGR = (End Year Value / Start Year Value) ^ (1 / Years) - 1
Where
End Year Value = the end year financial metric value
Start Year Value = the start year financial metric value
Years = the number of years in the (start year, end year]
CAGR Calculation Example
As an example, a company reports $65 million in annual sales for 2020, whereas, 5 years ago in 2015, the company reported $40 million in annual sales.
Given the following:
End Month Value = $65 million
Start Month Value = $40 million
Periods = 5
We then plug the values into the formula to get the CAGR:
CAGR = (End Year Value / Start Year Value) ^ (1 / Periods) - 1
CAGR = ($65 Million / $40 Million) ^ (1 / 5) - 1 = 10.2%
The result of a 10.2% compound annual growth rate (CAGR) indicates that the company annual sales grew at a 10.2% compound annual growth rate every year from 2015 to 2020."
CAGR and Financial Analysis
The compound annual growth rate (CAGR) is a financial formula used by investors and traders to analyze the financial performance of a company's annual sales, earnings, etc.
By using the CAGR to analyze company financials, traders get a better picture of the overall financial health of a company. To mitigate risk, good traders buy shares in quality companies that are financially stable and growing.
A positive CAGR indicates a company's financial metric is growing, whereas a negative CAGR indicates the financial metric is declining.
