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Geometric progression ratio that provides a constant rate of return over the time period From Wikipedia, the free encyclopedia
Compound annual growth rate (CAGR) is a business, economics and investing term representing the mean annualized growth rate for compounding values over a given time period.[1][2] CAGR smoothes the effect of volatility of periodic values that can render arithmetic means less meaningful. It is particularly useful to compare growth rates of various data values, such as revenue growth of companies, or of economic values, over time.[3]
For annual values, CAGR is defined as:
where is the initial value, is the end value, and is the number of years.
CAGR can also be used to calculate mean annualized growth rates on quarterly or monthly values. The numerator of the exponent would be the value of 4 in the case of quarterly, and 12 in the case of monthly, with the denominator being the number of corresponding periods involved.[4]
These are some of the common CAGR applications:
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