Compound Annual Growth Rate (CAGR)

Posted in Finance, Accounting and Economics Terms, Total Reads: 1762

Definition: Compound Annual Growth Rate (CAGR)

Compound Annual Growth Rate (CAGR) is the rate, or the ratio, which defines the growth of a investment/business for a given time period. CAGR is more of a mathematical concept which is used to calculate the effectiveness of a business investment.


CAGR=(End Investment Value/Start Investment Value)1/(Number of Years) - 1

CAGR assumes that the rate would be steady over the period of years specified which may be correct for theoretical/mathematical purposes but may not happen in the business world.

Business does not work on steady rate of growth as there are lot of factors.

Some applications of CAGR include calculations of growth in investments like deposits, bank accounts or for comparing business on a fixed rate of growth.


If a business has Revenue of 10000$ at end of this year and it is assumed that after 5 years from now it becomes 50000$.

Then the calculation would be 

CAGR=(50000/10000)1/(5) - 1=.3797

This means in percentage CAGR is 37.97%


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