Compound annual growth rate

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Compound annual growth rate (CAGR) is one method of assessing the average growth of a value over time. To calculate CAGR, one must solve the equation:

[E = B(1+r)^T]

where E denotes ending value, B denotes beginning value and T denotes the time passed in years. The value of r that solves the equation is the percentage annual growth rate.

Using the same terminology to solve for r, the formula looks like this:

[r = (E/B)^-1]

The CAGR is one of the most examined items on the Investor's notepad. In other words, this is a key factor that makes a company look financially strong or weak.

The CAGR formula implicitly takes compound interest into account.

In a spreadsheet program such as Microsoft Excel, CAGR can be calculated with the formula =POWER((E2/B2),(1/(E1-B1)))-1, where B2 is the cell with beginning value and E2 is the cell reference for the end of the series, and B1 is the beginning year and E1 is the final year.


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