A metric to measure and compare growth rates over time, accounting for compounding effects. Compound Annual Growth Rate (CAGR) smooths the effect of volatility of periodic values that can render arithmetic means less meaningful. It is particularly useful for comparing growth rates of various data values, such as revenue growth of companies, or of economic values, over time.
How to Calculate CAGR
The CAGR formula calculates the mean annual growth rate of an investment over a specified period of time longer than one year.
- Ending Value (EV): This is the value of the investment at the end of the period. In the context of sales and marketing, it could be the revenue or sales figure at the end of the period under consideration.
- Beginning Value (BV): This is the value at the start of the period. This could be the revenue or sales figure at the start of the period for a business.
- Number of Years (n): This is the period over which the growth is measured, expressed in years.
Loading formula...
Loading formula...
Applications of CAGR
CAGR is widely used in finance and business to understand growth over multiple years, considering the compounding effect.
- Comparing Investments: CAGR helps compare the growth of different investments, businesses, or business segments over time.
- Sales and Marketing: It allows businesses to track their sales or market share growth over multiple years, irrespective of any fluctuations that might occur year on year.
- Performance Illustration: This metric can also be a powerful tool in presentations and reports to illustrate the growth potential or historical performance of a product, service, or entire business.
