Notes on CAGR (Compound Annual Growth Rate) Calculator

1. What is CAGR?

CAGR (Compound Annual Growth Rate) is a useful financial metric that measures the average annual growth rate of an investment over a specified period, assuming profits are reinvested at the same rate every year.

2. Uses of CAGR

• Evaluating stock market returns
• Comparing investment performance
• Assessing business growth over time
• Projecting future investment growth

3. How to Use a CAGR Calculator

• Input the initial investment amount (BV).
• Input the final investment amount (EV).
• Input the time period in years (n).
• The calculator will return the CAGR percentage, indicating the average annual return.

4. Example Calculation

• Initial Investment = $10,000
• Final Investment = $16,000
• Investment Duration = 5 years

So, the investment grew at an average annual rate of 9.86% over 5 years.

5. Limitations of CAGR

• CAGR assumes a constant growth rate, which may not reflect actual market fluctuations.
• It does not consider external factors like inflation or additional contributions/withdrawals.
• CAGR does not account for risk or volatility.

6. CAGR vs. Other Metrics

Metric	Definition	Key Difference
CAGR	Measures average annual growth over a period	Smoothens out fluctuations
IRR (Internal Rate of Return)	Considers cash flow at multiple points	More accurate for investments with variable returns
Absolute Return	Measures total percentage gain/loss	Doesn’t account for time factor

7. Why Use a CAGR Calculator?

• Simplifies complex growth calculations.
• Helps compare investment options easily.
• Provides insights into long-term growth trends.