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What is the CAGR calculator?
CAGR (Compound Annual growth rate) is a helpful tool that measures your annual average growth during a set period. It estimates the average rate of return within a specified period of year. You can use this calculator to know whether your investment has grown or declined over a specific period.
When calculating CAGR, the assumed profits are reinvested each year. Therefore, the CAGR return indicates an average number rather than the actual return.
In several cases, investment cannot grow at the same rate for every year and its profits may vary from year to year. Thus, you can use this CAGR calculator for diversified investments.
The common purpose of the CAGR calculator is to help investors make informed investment decisions. The compound annual growth rate formula used in this CAGR calculator provides a convenient way to find the rate of return on investment.
For example, if you are investing in a mutual fund, you can use this calculator to determine the rate of return. CAGR helps compare your annual returns with a benchmark.
By comparing your rate of return with benchmark return, you understand how much you should be earning and the performance of investment.
How to Calculate CAGR?
If you want to calculate the compounded annual growth rate on investment, you use the CAGR calculator.
The Formula of CAGR calculator:
CAGR = (FV / PV) ^ (1 / n) – 1
FV – Refers to future of the investment
PV – Refers to present value of the investment
n – Refers to the number of years you invested. It is called tenure of the investment in years
Given steps for CAGR calculation:
- At the end of the period, divide the investment’s future value by its initial value
- Raise the result to the power of one divided by the tenure of the investment year
- Minus one from the total.
You can use this formula to find the CAGR on investment.
Let’s say, you invested 50,000 in a mutual fund in 2019. Now, the value of investment is 65000 in 2024. You can calculate the CAGR of this mutual fund:
CAGR = (65000/ 50000) ^ (1/5) – 1 = 5.39%
Your mutual funds’ compound annual growth rate is 5.39% per annum.
If you want to estimate the absolute returns on investment, you can use this calculator,
The formula of absolute returns:
Absolute returns = (FV – PV) / PV * 100
Absolute returns = (65000-50000)/ 50000 * 100 = 30%
Therefore, the absolute return on investment is 30% during its tenure.
Why is CAGR important?
CAGR is an important formula for evaluating different investment performance over time. It can easily solve the arithmetic limitations while calculating compound annual growth rate.
CAGR evaluates how investments perform over a certain period. You can compare its performance with other similar stocks.
Benefits of CAGR calculator online?
- Investors use this calculator to calculate the average rate of return in different situations. They can apply it to various scenarios.
- To use the calculator, enter the values of initial investments, its future values and its tenure year. Online CAGR calculator does the remaining calculation process of finding the compound annual growth rate return.
- Assume you are buying equity stocks units and over a specific period its worth will be increased. In this scenario, you can utilize this calculator and evaluate your profit rate on your equity investment.
- You can get extensive observations on your investment by using this calculator online.
- To compare your stock performance with the other peer group of stocks or the whole industry, you can use this compound annual growth rate.
- You can check your business growth through this online CAGR calculator. It will enable your business options, you can compare two different business stocks based on its CAGR.
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FAQs
What is the formula to calculate CAGR?
The Formula of CAGR calculator:
CAGR = (FV / PV) ^ (1 / n) – 1
CAGR – Compound annual growth rate
FV – Future value of investment
PV – Present value of investment
n – investment tenure in years
Is CAGR of 12% good?
A good CAGR for top companies in the sector starts from 8% to 12%, whereas, the volatile companies desire for a compound annual growth rate in the midst from 15% to 25%.
Is a CAGR of 30% good?
For large companies, 5% to 12 % CAGR is good. Likewise, 15% to 30% CAGR is adequate for small companies. However, it is important companies’ CAGR must be stable over time. If the companies have a high CAGR, it does not mean it is consistent. A company’s stable CAGR indicates the constant and regular growth of the company.
What is a strong CAGR?
A 30% CAGR denotes outstanding and strong growth over time. If a company’s investment value increases by 30% each year, it signifies that company has potential growth and robust performance.
What is CAGR over 5 years?
A CAGR over 5 years is based on the effect of compounding, which means the investment growth builds on itself. Imagine you invest Rs. 1000 in a mutual fund over five years, its growth increases by 10% annually. This means that mutual fund investment grows by 10% each 5 years.
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