CAGR calculation in Excel

CAGR:

CAGR - Compounded Annual Growth Rate is a measure of growth over a period of time. It is usually calculated for number of years. Businesses use CAGR to measure the growth in their revenue over a period of time. In finance CAGR is used as a measure that indicates appreciation in the value of an Investment over a period of time.

Example:

Suppose an initial investment of $10000 is made and its value appreciates to $17000 after 5 years. CAGR for this investment is calculated using the below formula.

                         

                                                          where n = no. of years

The CAGR for the above investment example is 0.11196 or 11.196%. Here, CAGR is equivalent to constant growth rate per year. (i.e. Constant growth of 11.196% for 5 consecutive years.

You can validate the CAGR by calculating Final Value using the initial value of $10000 and CAGR of 11.196%.

                                Final Value = $10000 * (1+0.11196)^5 = $17000