What Is CAGR (Compound Annual Growth Rate)?
Definition
CAGR (Compound Annual Growth Rate): The constant yearly rate at which an investment would grow from its initial value to its final value: (final value / initial value)^(1/t) − 1.
CAGR, the compound annual growth rate, is the constant yearly rate that takes an investment from its initial value to its final value. It lets you compare investments held for different periods. Unlike total return divided by years, it counts returns earning returns. It ignores interim cash flows and inflation.
Where it appears in the formulas
CAGR = (final value / initial value)^(1/t) − 1, with t the holding period in years (1 month = 1/12, 1 day = 1/365 year). The investment return calculator gives CAGR as its main result. For periods shorter than a year it can come out very large.