Compounded annual growth rate - CAGR

RECENT NEWS  Apr 15  Comment 
Hypoport AG: Strong start to the year with sharp year-on-year rise in earnings Hypoport AG / Key word(s): Forecast 15.04.2016 15:56 Dissemination of an Ad hoc announcement according to § 15 WpHG, transmitted by DGAP - a service of EQS Group...
Channel News Asia  Apr 15  Comment 
Retailers of motor vehicles recorded a sales increase of 51.3 per cent in February compared with the previous year, the highest increase across all sectors. Food & Beverages fell the most, at 34.7 per cent.
Channel News Asia  Apr 13  Comment 
In a statement on Wednesday (Apr 13), M1 said it earned S$42.5 million in the three months ended March, down from S$45.7 million a year ago. 
The Hindu Business Line  Apr 7  Comment 
Invocation fears keep investors away from cos with large ratio of pledged shares
Automotive World  Mar 28  Comment 
[ Summary : February 2016 ] < Domestic Production > February 2016・・・Fourth consecutive monthly year-on-year increase since October, 2015 ( 109.5% year-on-year ) < Overseas Production > February 2016・・・Ninth consecutive monthly...  Mar 14  Comment 
Hypoport AG: Record results in 2015, with sharp year-on-year rises in revenue and earnings DGAP-News: Hypoport AG / Key word(s): Preliminary Results Hypoport AG: Record results in 2015, with sharp year-on-year rises in revenue and...  Mar 4  Comment 
Hypoport AG: Record results in 2015, with sharp year-on-year rises in revenue and earnings Hypoport AG / Key word(s): Forecast 04.03.2016 17:59 Dissemination of an Ad hoc announcement according to § 15 WpHG, transmitted by DGAP - a service of...
Reuters  Feb 13  Comment 
China's retail sales grew 11.2 percent during the week-long Lunar New Year vacation compared with the same holiday period last year, Ministry of Commerce data showed on Saturday.
Channel News Asia  Dec 15  Comment 
Excluding the 61.8 per cent year-on-year rise in motor vehicles sales in October, retail sales decreased 4.6 per cent, according to Department of Statistics data.
The Hindu Business Line  Dec 9  Comment 
The smart home market is expected to grow at a rate of 30 per cent year-on-year, thereby, ensuring that the market will double in revenue every three years, according to a survey by Schneider Elec...


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.

Related concepts:

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.

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki