CAGR Meaning

CAGR is the term which is often used in finance; it is the acronym for Compound Annual Growth Rate. It represents the growth which an investment has given over a period of time and not for single year. The formula for calculating CAGR is – (Current value of investment/Beginning value of investment) 1/N – 1, where n is Number of years.

Hence when one is talking about CAGR, it should not be confused with normal rate of return because compound annual growth rate is for many years while normal rate of return is usually for 1 year. Therefore it may be possible that an investment for the year has given negative return still its CAGR is positive because of past years superior returns and thus one should be careful while seeing the compound annual growth rate and should not make his or her investment decision only on the basis of CAGR as it can be misleading some times.

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