
Compounded Annual Growth rate (CAGR) is a business and investing specific term for the smoothed annualized gain of an investment over a given time period. CAGR is not an accounting term, but remains widely used, particularly in growth industries or to compare the growth rates of two investments because CAGR dampens the effect of volatility of periodic returns that can render arithmetic means irrelevant. CAGR is often used to describe the growth over a period of time of some element of the business, for example revenue, units delivered, registered users, etc.
the formula is
Let’s understand it with an example.
Year =>
0
1
2
3
4
5
6
Growth Rate in the year
20%
-8%
...