CAGR
CAGR stands for "Compound Annual Growth Rate," which in Dutch means "Compound Annual Growth Rate. It is a financial term used to calculate the average annual growth of a given value, such as sales, profits or investments, over a period of time. CAGR is useful because it eliminates the impact of annual fluctuations and volatility in the data and provides a standardized growth rate.
To calculate CAGR, divide the final amount by the starting amount, take the nth root of the result (where n is the number of years) and subtract one. This gives the average annual growth rate over that period.
CAGR in Financial Analysis
CAGR is often used in investment analysis to measure return on investment over time, and it helps compare different investment opportunities. It is also used in business analysis to evaluate the growth of business activities in terms of sales or profitability.
