CAGR: Difference between revisions

From ACT Wiki
Jump to navigationJump to search
imported>Doug Williamson
(Note expressly that the 2-year period is historical.)
imported>Doug Williamson
(Mend link.)
 
(6 intermediate revisions by the same user not shown)
Line 1: Line 1:
Compound Annual Growth Rate.
Compound Annual Growth Rate.
The compound annual growth rate is calculated from total growth over a longer period as:
CAGR = ( End amount / Starting amount )<sup>(1/n)</sup> - 1
''Where:''
n = number of years between the two points sampled
<span style="color:#4B0082">'''Example 1'''</span>
Sales have grown from $100m to $150m over the most recent 2-year period.
The CAGR is:
= ( 150 / 100 )<sup>(1/2)</sup> - 1
= 22.5%.
During this particular 2-year historical period, sales were growing at an average rate of 22.5% per annum.
However, this is not evidence about any other periods, particularly not future periods.
<span style="color:#4B0082">'''Example 2'''</span>
The same formula can be used to calculate a compound annual growth rate, based on a ''shorter'' sampling period.
Sales grew from $100m to $115m over a historical period of 3 months (= 0.25 years).
The CAGR caclulated from this data is:
= ( 115 / 100 )<sup>(1/0.25 = 4)</sup> - 1
= 74.9%.
During this particular 3-month period, sales grew at a rate of 74.9% per annum.
On its own, this is NOT evidence that sales will continue to grow at this rate during the remaining 9 months of the year, nor indeed in any other period.
Proper use of this kind of analysis will investigate the ''reasons'' for the figures, and then respond appropriately.




== See also ==
== See also ==
* [[Compound Annual Growth Rate]]
* [[Compound interest]]
* [[Compound interest]]
* [[Extrapolation]]
* [[Geometric mean]]
* [[YOY]]
* [[YOY]]
* [[Extrapolation]]
 
[[Category:Investment]]
[[Category:Financial_products_and_markets]]

Latest revision as of 13:13, 24 February 2019