CAGR
Also called: compound annual growth rate, annualised return, annualized return
The compound annual growth rate, the steady yearly rate that would take a starting value to an ending value over a period.
CAGR = (ending value ÷ starting value)^(1 ÷ years) − 1.
It turns returns over different lengths of time into comparable yearly figures. It is a smoothed number: an investment with a 12% CAGR may have risen 40% in one year and fallen 20% in another.
Example
An investment that grows from ₹50,000 to ₹80,000 in four years has a CAGR of (80,000 ÷ 50,000)^(1/4) − 1, which is about 12.5% a year.
Learn more in these lessons
- Dividends, capital gains and lossesHow do you make or lose money from shares?
- Compounding and CAGRHow does compounding work, and what is CAGR?
- Averages, spread and volatilityWhat does volatility mean in investing?
- Revenue and earnings growthHow should you measure whether a company is really growing?
- The PEG ratioDoes a PEG ratio below 1 mean a share is undervalued?
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