Compound Annual Growth Rate

Compound Annual Growth Rate: Compound annual growth rate or CAGR is which shows the percentage of growth of compounding of our investment annually. It is the very important concept to calculate profit on our investment. It presents the total profit on long-term investment so that we can understand how much compounding growth we get from the investment.

CAGR Formula: {|(END VALUE/BEGINNING VALUE)^(1/ NO. OF YEARS)-1}*100

Use of CAGR in investment or Stock Market: Any company that is listed in the stock market is doing its business since the year. Therefore CAGR is important to know the annual growth of compounding of the company. On the other side for the investor, it is important to know that how much profit he is making on compounding every year. CAGR helps in analyzing long-term profit by calculating the annual compounding growth. It is important to know compound interest and it is beneficial for long-term investment or not.

Everyone in the stock market wants to earn the maximum profit on their investment, in this case, the calculation of the returns on the investment becomes compulsory for everyonernNow, the return on investment can be done in two ways ABSOLUTE RATE or Compound Growth Annual Rate (CAGR). Absolute rate is calculated by removing the percentage of the profit on the direct investment in which it does not focus on how much time it is taking. But calculate the profit on any kind of investment, we must use the CAGR, so that we can choose the best investment from all the available investment options.