How To Calculate Percentage Increase Per Year

CAGR Formula:

\[ CAGR = \left( \left( \frac{\text{Ending Value}}{\text{Beginning Value}} \right)^{\frac{1}{\text{Number of Years}}} - 1 \right) \times 100 \]

CAGR (%):

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1. What is CAGR?

CAGR (Compound Annual Growth Rate) measures the mean annual growth rate of an investment over a specified time period longer than one year. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.

2. How Does the Calculator Work?

The calculator uses the CAGR formula:

\[ CAGR = \left( \left( \frac{\text{Ending Value}}{\text{Beginning Value}} \right)^{\frac{1}{\text{Number of Years}}} - 1 \right) \times 100 \]

Where:

\( \text{Ending Value} \) — Final value of the investment
\( \text{Beginning Value} \) — Initial value of the investment
\( \text{Number of Years} \) — Total investment period in years

Explanation: The formula calculates the constant rate of return that would be required for an investment to grow from its beginning balance to its ending balance, assuming profits were reinvested at the end of each period.

3. Importance of CAGR Calculation

Details: CAGR is widely used to compare the historical performance of different investments, evaluate business growth, and make investment decisions. It smooths out the volatility of periodic returns to provide a clearer picture of long-term performance.

4. Using the Calculator

Tips: Enter the beginning value, ending value, and number of years. All values must be positive numbers (beginning value > 0, ending value > 0, years ≥ 1).

5. Frequently Asked Questions (FAQ)

Q1: What is a good CAGR percentage?
A: A "good" CAGR depends on the investment type and market conditions. Generally, 7-10% is considered good for stock investments, while higher percentages indicate exceptional performance.

Q2: How is CAGR different from average annual return?
A: CAGR accounts for compounding effect, while average annual return simply averages the yearly returns. CAGR provides a more accurate representation of growth over time.

Q3: Can CAGR be negative?
A: Yes, if the ending value is less than the beginning value, CAGR will be negative, indicating a loss over the period.

Q4: What are the limitations of CAGR?
A: CAGR assumes smooth growth and doesn't account for volatility or the timing of cash flows. It may not reflect the actual year-to-year performance.

Q5: Where is CAGR commonly used?
A: CAGR is used in investment analysis, business planning, mutual fund performance evaluation, and comparing different investment opportunities.