CAGR

CAGR stands for Compound Annual Growth Rate. It is a financial metric that represents the mean annual growth rate of an investment over a specified time period, assuming the investment has been compounding over that duration. CAGR provides a smooth annual growth rate by eliminating the effects of volatility and fluctuations in growth that may occur during the investment period. It is particularly useful for comparing the growth of different investments or assessing the performance of an investment against a benchmark. The formula to calculate CAGR is:

CAGR = (Ending Value / Beginning Value)^(1/n) – 1

where “Ending Value” is the value of the investment at the end of the period, “Beginning Value” is the initial value of the investment, and “n” is the number of years over which the investment has grown. CAGR is expressed as a percentage and helps investors understand how well an investment has performed over time on an annualized basis.