How to use it
- Pick Growth rate (CAGR) to calculate the rate, or End value to project forward.
- For CAGR, enter the start value, the end value and the number of years. The two values must be in the same units, for example money at the same point of the year.
- For a projection, enter the start value, the yearly growth rate and the years.
- The results show the rate or end value, the total growth in percent and the gain or loss in absolute terms.
How it works
Growth that compounds multiplies the value by (1 + r) every year, so after t years the value is start × (1 + r)^t. Solving for r gives the CAGR:
- CAGR = (end ÷ start)^(1 ÷ t) − 1
- End value = start × (1 + r)^t
- Total growth = end ÷ start − 1
Worked example
A portfolio is worth 10,000 and grows to 18,000 in 5 years. The ratio is 1.8, and 1.8^(1/5) = 1.1247, so the CAGR is 12.47% a year with total growth of 80%. Going the other way, 1,000 growing at 7% for 10 years reaches 1,000 × 1.07^10 = 1,967.15.
Tips
- Use consistent dates. Measure start and end at comparable points; a start at a peak or end at a trough changes the answer a lot.
- Compare like with like. CAGR figures are only comparable over the same period.
- Remember cash flows. CAGR assumes nothing was added or withdrawn in between. If it was, the result is not the investment’s return.
- It is a calculation, not a forecast. Past growth does not predict future growth.