CAGR Calculator

Are you also calculating the return on investment incorrectly? Suppose you have invested Rs. 500 in ABC Company.

After 8 years, your investment grows to Rs. 25,000. So, usually, people will calculate the return on investment as - 24,500/25000*100%= 49%

This is the wrong way to calculate your ROI!

This method of calculation does not take the number of years for which you have invested.

Compounded Annual Growth Rate (CAGR) takes into account how much your investment has grown on average over a specified number of years. This is a more appropriate way of calculating your ROI.

Thus, if you have calculated using the CAGR method, then the CAGR on your investment would be 63.07%, which is a more appropriate way of calculating ROI.

So, let us discuss what CAGR is, how to calculate it, and how to use the CAGR Calculator Online.

What is the CAGR and CAGR Calculator?

Compounded Annual Growth Rate (CAGR) is a useful measure for understanding how much your investment has grown over a specified number of years on average.

CAGR gives a clearer picture of the overall growth of our investment as it smooths out the ups and downs of the performance of your investment.

How to Calculate CAGR?

Calculating the CAGR is a very straightforward process, so let us discuss how we can calculate it.

Steps to Calculate CAGR Value:

• Identify the beginning value- The amount of your investment
• Identify the end value- The value of your investment at the end of the year.
• The Number of Years- The total time period over which your investment has grown.

Formula- The formula for CAGR is:

CAGR= {(Ending Value/Beginning Value)^1/Number of Years}-1

= {(25000/500 )^1/8}-1

Thus, putting the values of the above example, we get a CAGR of 63.07%

In order to make this calculation easy, there are online CAGR Calculators.

CAGR Return Calculator easily computes the CAGR value without doing the Maths Yourself!

How to use the CAGR Calculator?

We need to enter the values of the following as stated in the following image-

• The value of your initial investment-500
• The future value of your investment- 2500
• The investment period- 8 and click on "Calculate now."

How to calculate CAGR in Excel?

There is another way of calculating CAGR through Excel. Excel has built-in the XIRR function, in which you insert inputs, and the CAGR value will be calculated automatically.

CAGR vs ABSOLUTE RETURNS

Let us discuss the difference between CAGR and Absolute Returns-

When we directly calculate the ROI without considering the number of years invested, then it is termed as Absolute Returns.

In the above example, the Absolute Returns on Rs. 500 invested is 49%.

On the other hand, CAGR takes into account the number of years on an average. Thus CAGR on Rs. 500 invested for 8 years is 63.07% as shown above.

Advantages of Online CAGR Calculator

Below are the advantages of online CAGR calculator -

• The online CAGR calculator is a easy to use tool. All you must do is to enter the initial and final values along with the period of the investment.
• The CAGR calculator helps you to calculate the returns from your investments. You can compare the your investment's average annual growth rate overtime against a benchmark.
• You may also use the CAGR calculator to determine how the investments in your portfolio have performed over some time.

FAQ

What is a Good CAGR?

Big companies in an industry should strive for a compound annual growth rate (CAGR) of 8% to 12%, whereas high-risk enterprises should target a CAGR of 15% to 25%.

What is CAGR in SIP?

The average yearly growth rate of your investments over a certain period is measured by the CAGR (Compound yearly Growth Rate). It displays the average annual rate of return on your investments. The exact measurement of investment growth (or decline) over time provided by CAGR makes it an invaluable tool for investors.

How to calculate CAGR for SIP?

Multiply the total units by the most recent NAV to determine the overall value. Determine Returns: For a percentage return, use = ((Total Value - Total Investment) / Total Investment) * 100.

Can you calculate CAGR on percentages?

Yes, Compound Annual Growth Rate (CAGR) can be computed using percentages. A percentage-based measure called compound annual growth rate (CAGR) can be used to estimate how much an investment will grow each year over a longer time frame.

How to calculate CAGR in the normal calculator?

Compound Annual Growth Rate (CAGR) can be calculated using the following formula: CAGR = [(Value at the beginning / Value at the end) ^ (1/n)] - 1, where n is the amount of time invested.

Does CAGR reflect investment risks?

Investing risk is not included in the Compound Annual Growth Rate (CAGR). A percentage-based indicator called compound annual growth rate (CAGR) is used to calculate an investment's yearly rate of return over a longer time frame.

Is calculating CAGR a better idea than working on IRR?

CAGR is better suited for assessing single, lump-sum investments over time, but XIRR is better for assets with irregular cash flows.

How do you calculate CAGR from absolute return?

For absolute returns, the formula is [(Current investment value/Initial investment amount)] x 100 = Absolute Returns (in %). CAGR (in percentage terms): [(Starting value/Ending value) ^ (1/n) - 1] x 100. Total Returns (in percentage terms) = [(Previous investment value / Initial investment amount)] x 100.