CAGR : What is CAGR and How to Calculate CAGR on Investment

CAGR Full form

It is abbreviated as Compound Annual Growth Rate related to investments, and CAGR does tell how much profit will be earned at a constant rate for a long term or given period.

Compound Annual Growth Rate does show how much a person’s investment has grown in a specific period and can be easily described as an average return of an investor which is earned from the investments made at a given interval of period, where if understood completely means by anyone, it will be the eighth wonder of the world.

Banks do calculate CAGR in a way of a percentage to look at their margin in every spending, and in the same case, the stock exchange will not have a proper rate for every year as it does change year to year.

CAGR Meaning

How to Calculate CAGR

The actual CAGR meaning is observed that many investors do look at the returns which are earned from investments and this does not have the time value of money, and the work of Compound Annual Growth Rate is to show you how much you might have in the term of investor and what is percent if you’re not in the volatility.

The fluctuations which are seen at every period can be easily found and being an investor you can easily determine the investment process, and the Compound Annual Growth Rate can be calculated on the new CAGR calculator by using below the terms.

  1. The Investment Made at initial period of year
  2. Value of Investment at End of Year
  3. Tenure of Investment

The formula for CAGR is End Value divided by Beginning Value which is a percentage of tenure of investment.

How Does CAGR Returns Determine?

There are different ways based on which the returns from the CAGR can be determined, these do help you determine the value of mutual funds.

Annual Returns: In these, you get to know the annual return of your returns that are earned from the investments for a fixed period of the year, By considering the annual returns of the period, the returns rate of an investor earns is easily seen, and these will let you know how much investment can bring the profit without looking at the volatility of the market using Compound Annual Growth Rate.

Trailing Return: In this method Compound Annual Growth Rate does let you know the historic performance of your funds which can be based on daily, weekly, monthly, or any tenure, and this is best suitable for one-time investment and which will give you the exact value of return at the end of that time period fixed.

Returns Since Launch: The Net Asset Value is calculated if you have an investment that has started for a long, and the asset value determines that value you have earned under the pressure of market volatility and other circumstances.

How does the Compound Annual Growth Rate seen

As per the investor’s view, there are some basic points one should be known when trying to use the Compound Annual Growth Rate.

  1. Compound Annual Growth Rate is not an indicator of sales which happened from the start of the year to last year. In many cases the growth of funds will be seen at the initial or end of the year.
  2. In some cases two investments might have the same Compound Annual Growth Rate while having one more lucrative to others. Due to the growth being higher at initial period for one investment and growth being higher at end of year for second investment.
  3. Compound Annual Growth Rate must be used to calculate investment between three to seven years which this tenure does increase the value of CAGR might not include the sub trends which might occur in between.
  4. The Compound Annual Growth Rate does values year to year, as the growth rate and annual value of money is different.

What is a Good CAGR

The Compound Annual Growth Rate for an industry does depend on the company size along with the sales growth. These values must be between 5 to 10 percent and if the growth is more than 10 percent that is a more achievable value to success.

What Does a 3 Years Compound Annual Growth Rate Mean?

The Sales growth does show the growth rate at specific period and if the Compound Annual Growth Rate is calculated with the term year as 3 with the starting year value as zero is term as 3 years CAGR value. The value brings you a compound value for an entire initial to 3rd year term.

Does annual return and CAGR Same?

If the value of initial period and final year calculated to bring the Annualized return and Compound Annual Growth Rate, then their value will be similar and if the absolute return is different from your investment then the CAGE does mean the speed used to calculate your return.