Sep 08, 2014,16.12 IST

We tell you what Compound Annual Growth Rate is

Compound Annual Growth Rate (CAGR) indicates the compound growth rate of the amount invested over a specific time interval. It is used to indicate revenue growth or decline of a company over a period of time.

Formula

{[(End value)/(Start Value)] ^(1/No of years)} – 1

Example

If you want to calculate CAGR of a company over 5 years.
Starting value: Rs 10000. Year 1: Rs 12500, Year 2: Rs 25000, Year 3: Rs 30000, Year 4: Rs 40000, Year 5 (Ending Value) : Rs 60000
 [(60000/10000)^(1/5)] - 1


[6^(0.2)] – 1
1.43 – 1
43%.
Rs 10000 have given a compounded return of 43% in each of the five years.

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