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## Compounded annual growth rate - CAGR |

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Reuters
Apr 17
Comment

China's economy grew 6.8 percent in the first quarter of 2018 from a year earlier, official data showed on Tuesday, slightly above expectations and unchanged from the previous quarter.

MarketWatch
Jan 9
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Shares of United Continental Holdings Inc. rose 2% late Tuesday after the airline said its December consolidated traffic (revenue passenger miles) increased 2.7% while consolidated capacity (available seat miles) increased 3.7% compared with...

Channel News Asia
Dec 12
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SINGAPORE: Retail sales fell 0.1 per cent in October compared to the previous year, according to figures released by the Department of Statistics (Singstat) on Tuesday (Dec 12).
Excluding motor vehicles, retail sales increased 0.8 per cent from...

Japan Today
Dec 8
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Japan's economy is gaining momentum, expanding at a 2.5 percent annual pace in July-September, the government said Friday.
The upward revision from an earlier estimate of 1.4 percent growth…

JCN Network
Oct 31
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TOKYO, Oct 31, 2017 - (JCN Newswire) -
Summary: September 2017
Domestic Production
- Fourth consecutive monthly year-on-year increase since May, 2017 (112.5% year-on-year)
Overseas Production
- Fourth consecutive monthly year-on-year increase...

The Economic Times
Oct 25
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The gross NPAs, as on September 30, stood at 0.34% as against 0.26% a year ago. Net NPAs of the company stood at 0.26% of the loan assets compared with 0.18% a year ago.

The Economic Times
Sep 26
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In 2014, registrations increased slightly to 1.95 lakh while in 2015, a five-day extension in the registration window took the total tally to 2,18,664.

Channel News Asia
Sep 6
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Global air travel demand in July rose 6.8 percent year on year, slowing from 7.7 percent growth recorded in June, the International Air Transport Association (IATA) said on Wednesday.

Mondo Visione
Sep 1
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The trading volume for the first eight months of the year totaled €450.7 bn
The number of equity trades in August grew 6.4% year-on-year
New admissions on MARF at the end of August were up 105% on the year
Equities
The trading...

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This article is part of WikiProject Definitions. Consider editing to improve it. View articles referencing this definition. |

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The compound annual growth rate (CAGR) is the rate at which something (e.g., revenue, savings, population) grows over a period of years, taking into account the effect of annual compounding.

A compound is composed of two or more parts. In the case of compound growth, the two parts are principal and the amount of change in the principal over a certain time period, which is called “interest” in some circumstances.

This is sometimes called “growth on growth” because it measures periodic growth of a value that is itself growing periodically. If we are calculating the annual compound growth rate, then each year the new basis is the previous basis plus the growth over the previous period.

In looking at an investment, the CAGR is a measure that is commonly used to show how quickly the investment, or certain aspects of it, such as gross sales, have been growing. Investment analysts often look at five-year periods to discern a trend. A specific company’s rate of growth is often then compared with that of competitors or with the industry as a whole.

For example, Company A had a revenue CAGR of 8.5% over the past five years. One of its direct competitors has grown by 9.4% and two others have seen slower growth. The industry as a whole has seen revenues grow by 7.3% per year, compounded annually. On this basis one would conclude that Company A is doing well and in fact might be gaining market share. Of course, other factors need to be looked at, such as debt and the outlook for the industry.

The formula for compound annual growth rate is:

*((Ending Value/Beginning Value)^(1/# of Years))-1*

(A financial calculator may be useful for performing this calculation.)

There are five variables in a compound growth rate calculation:

- Beginning value
- Ending value
- Length of time between the values
- Periodic scale (days?, months? years?)
- Periodic rate of change

You need to know four of these values to make the calculation of the fifth.

For example, Company A had revenues of $1.35 billion in 2002. Revenues grew by a CAGR of 8.5% through 2007, a period of five years. We know the beginning value, the length of time, the periodic scale (years) and the periodic rate of change. Now we can determine what the revenue was in 2007.

**Average annual change** is not to be confused with compound annual change. Average annual change is simply the growth rate over a period, say 50% over ten years, divided by the number of years, which yields 5.0% in this case. That is higher than the CAGR, which is 4.1%.

**Compound interest.** Useful when there is a set interest rate, as in a savings account. The interest rate is applied to the beginning principal and also to all accumulated interest. Sometimes there is an annual interest rate *compounded monthly*. Say you deposit $10,000 at an annual interest rate of 12% (you wish!), compounded monthly. At the end of the first month your $10,000 has grown by 1.0% (12%/12), or $100. During the next month the basis is $10,100 and it grows another 1%, or $101, making the balance $10, 201. At the end of one year the balance grows to $11,268. Compare that with $10,000 invested at a *simple annual interest* rate of 12%, which yields $11,120, which is $148 less.

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