How to Calculate CAGR (Compound Annual Growth Rate)
CAGR measures the mean annual growth rate of an investment over a specified time period. It smooths out volatility to show a consistent growth rate.
CAGR Formula
CAGR = (Final Value / Initial Value)^(1/n) - 1
Where:
- Final Value = Ending value of the investment
- Initial Value = Beginning value of the investment
- n = Number of years
Step-by-Step:
- 1
Divide
Divide the final value by the initial value.
- 2
Apply exponent
Raise to the power of 1/n (where n is years).
- 3
Subtract 1
Subtract 1 and multiply by 100 for percentage.
Worked Examples:
Stock investment
Initial: ₹1,00,000Final: ₹2,50,000Years: 5
Result: 20.1% CAGR
(250000/100000)^(1/5) - 1 = 0.201 = 20.1%