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Compound Annual Growth Rate (CAGR) is the year-on-year value of an investment over a specified number of years. The CAGR calculator is a useful for determining the annual growth rate on an investment whose value has fluctuated during the period of investment. CAGR allows you to produce an accurate Return on Investment (ROI) rate for the full period of an investment.
If you want to understand compound annual growth rate, try to learn a bit about the term compound interest first. Calculated on the initial principal as well as the interest accumulated over the total time, it can be defined as the interest that you earn not just on the initial amount but also on the interest earned thereafter.
If you want to calculate the compound interest, it is important to understand the basic financial elements:
The financial formula used for calculating compound annual growth rate is:
Every investment is initiated with a certain goal in mind. To meet that, you need to ensure the growth rate of your investment and CAGR or Compound Annual Growth Rate does exactly that for you. CAGR is the yearly rate of return that your investment will require in order to grow from its original balance to closing balance within a certain period of time.
While a simple growth rate formula tells you the percentage increase of a value within a particular period of time, CAGR shows you the average rate of return your investment will require to grow from its initial balance to its final balance, within a mentioned period of time, on a yearly basis.
The logic behind CAGR is that the profits are reinvested at the culmination of each year of the time period. This number informs an investor about the rate at which their investment will grow during the whole period of investment. The CAGR value also helps investors compare different investments of different banks or financial entities as well as different investments of one bank or financial entity.
Calculating CAGR manually simply requires a pen and paper, use th e CAGR formula provided earlier and simply enter the relevant information into the formula and compute the calculations. Completing the calculation manually is tiresome and not the best use of time so savvy business owners, professionals and individuals who invest in a compounded growth plan leverage online calculators that can give them accurate results with one click. The CAGR calculator by iCalculator is an excellent calculator for calculating compound annual growth rate.
iCalculator has made it easier for you to calculate CAGR or Compound Annual Growth Rate without getting into in-depth calculations. You just have to enter the Initial Value, Final Value, and the Number of years of any investment to know the annual growth rate of the investment. It really is that simple. You don't need a financial background or degree in accounting to run the calculations and understand the details provided by this online calculator as the information and interface is kept clean and easy to use.
It's the easiest and most precise way of computing the return on an investment. Despite the falls and rise in the value of investment during the period of investment, you can analyse the growth rate anytime, anywhere. Also, comparing various investments over different time periods becomes easy for you with the help of this free online calculator. You can easily compare the profits from a particular investment with various instruments without risks. It helps in evaluating whether the premium for the risks taken is high or low.
CAGR does not consider the risks of the investment. Although it tells you how an investment is growing over the investment period, it rarely helps with the evaluation of volatility of a certain value of investment. CAGR will only provide you that the rate of growth as a constant. To calculate various aspects of profitability in addition to the annual growth rate you may have to dig deeper and use additional investment calculators as CAGR computes the rate of return, based only on the final and the initial balance of the portfolio.
CAGR is a very useful method to measure the growth of investments over multiple periods. Using a calculator to calculate this value is quite useful considering the time and effort it saves. Moreover, when you understand that the value of the investments may fluctuate widely during the time period, knowing the accurate CAGR becomes all the more important. The CAGR calculator is the perfect tool to give a complete and quick picture of your investment.
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