CAGR Full Form | What is Compound Annual Growth Rate

What is the full form of CAGR

CAGR: Compound Annual Growth Rate

CAGR stands for Compound Annual Growth Rate. It refers to the rate of return required for an investment to grow from its initial value to its ending value if the profits were reinvested at the end of each year of the investment's lifespan, i.e., when the investment has been compounding over the time period. So, it is a measure of growth over multiple time-periods that measures the total return on investment by calculating the return every year and compounding them. We can say that it is the annual growth rate of an investment over time when the effect of compounding taken into account. However, CAGR does not reflect investment risk.

The Formula and Calculation of CAGR:

CAGR = (EB/IB) ^1/n - 1

^1/n

Where:

EB = Ending Balance
IB = Initial Balance
n = Number of years

To calculate the CAGR of an investment:

Divide the ending value of the investment by its initial value
Raise the result to an exponent of one divided by the number of years
Subtract one from the result

Divide the ending value of the investment by its initial value

Raise the result to an exponent of one divided by the number of years

Subtract one from the result

Benefits of CAGR:

It is the most accurate way to calculate returns for any investment whose value may increase or decrease over time.
It allows investors to compare the CAGR of two alternatives to evaluate their performance against other investments or a market index.
It is not influenced by percentage changes within the investment horizon that may give wrong results.
It is considered an accurate way to measure the overall return on investment than using an average returns method.

It is the most accurate way to calculate returns for any investment whose value may increase or decrease over time.

It allows investors to compare the CAGR of two alternatives to evaluate their performance against other investments or a market index.

It is not influenced by percentage changes within the investment horizon that may give wrong results.

It is considered an accurate way to measure the overall return on investment than using an average returns method.

Related Full Forms

CFA Full Form

CFL Full Form

CFT Full Form

CFO Full Form

CGI Full Form

CGL Full Form

CIA Full Form

CIBIL Full Form

CIF Full Form

CII Full Form

CMA Full Form

CML Full Form

CMS Full Form

CMV Full Form

CNG Full Form

COB Full Form

COBOL Full Form

COO Full Form

COVID 19 Full Form

CPCB Full Form

CPM Full Form

CPO Full Form

CRM Full Form

CRP Full Form

CRR Full Form

CRT Full Form

CSC Full Form

CSE Full Form

CSIR Full Form

CSR Full Form

CSS Full Form

CST Full Form

CTBT Full Form

CTC Full Form

CTO Full Form

CTS Full Form

CA Full Form

CAA Full Form

CAD Full Form

CAG Full Form

CAGR Full Form

CC Full Form

CCC Full Form

CCIL Full Form

CCTV Full Form

CD Full Form