CAGR is
CAGR refers to Compounded Annual Growth Rate, which is a measure of how much an investment has grown over a period of time. It takes into account both the initial investment and the final value, averaging your growth rates from year to year. This metric is especially useful for long-term investments, as it smooths out fluctuations in returns over time.
What is a CAGR Calculator?
As an investor, you have to make smart decisions about your money. A CAGR calculator can help you achieve that goal.
Using CAGR calculator you can
- Determine whether your investments are growing with time
- Helps you evaluate which investment options are performing better compared to others.
How to Calculate CAGR?
The CAGR formula to calculate the investments is represented by:
CAGR = (FV / PV) 1 / n – 1
It is a mathematical calculation that determines the real-time CAGR for any organization. The values stand for the following:
| FV | Future Value |
| PV | Present Value |
| N | Time period in years |
An example of CAGR calculation
If you have an initial investment of Rs. 1 Lakh in a business, it constitutes the PV. If the total investment has swollen to Rs 10 Lakh (FV) after 5 years (N), the CAGR is:
(10,00,000/1,00,000)1 / 5 – 1 or 0.589
Thus, the CAGR percentage is CAGR x 100 or 58.9%.
Benefits of Using an Online CAGR Calculator
CashZeni CAGR calculator helps an investor to calculate CAGR on their investments which in turn will help them in analyzing their investment decisions.
Following are a few other benefits of using a CAGR calculator.
- It helps the investors to evaluate the returns in various scenarios. Furthermore, investors can use several test cases to evaluate returns in different scenarios. Since the calculator works on input data, there is no possibility of the outcome being incorrect.
- It is simple and easy to use. The investors only need to enter the beginning value, ending value and the investment period and the online calculator will do the rest.
- In practical scenarios, suppose the investor had purchased some units of an equity fund at some point in time whose value has increased now. With the help of the CAGR online calculator, investors can find out the rate of return on the investment.
Frequently Asked Questions
What is a CAGR calculator?
A CAGR calculator is a tool that helps calculate the Compound Annual Growth Rate, which is the average annual growth rate of an investment over a specific period, taking into account compounding.
How does a CAGR calculator work?
A CAGR calculator uses a formula to calculate the CAGR based on the initial value, final value, and the number of years or periods involved. It takes into account the compounding effect of the investment.
What is the significance of CAGR?
CAGR provides a standardized way to measure the growth rate of an investment over a specific period. It allows for easy comparison of different investments or assets that have varying growth rates or timeframes.
Can a CAGR calculator be used for any type of investment?
Yes, a CAGR calculator can be used to calculate the growth rate of various investments such as stocks, mutual funds, bonds, real estate, or any other investment where the initial and final values are known.
Can a CAGR calculator be used for negative growth rates?
Yes, a CAGR calculator can handle negative growth rates. It provides a single value that represents the average annual growth rate, regardless of whether the investment has experienced positive or negative growth.
Is the CAGR calculator suitable for short-term investments?
The CAGR calculator is generally more useful for long-term investments. Short-term investments with highly volatile or unpredictable returns may not provide meaningful CAGR values due to the compounding effect over a short period.
Can I calculate CAGR for a period shorter or longer than a year?
Yes, a CAGR calculator can calculate the growth rate for any period, whether shorter or longer than a year. It will adjust the growth rate to an annualized figure for easy comparison.
Can CAGR be negative?
Yes, CAGR can be negative if the final value of the investment is lower than the initial value. Negative CAGR indicates a negative growth rate or a loss on the investment over the given period.