Compounded Annual Growth Rate (CAGR)
The Compound Annual Growth Rate (CAGR) indicates the average annual return an investment generates over a period (e.g., 5+ years), assuming profits are reinvested. It smooths out performance to show consistent yearly growth. The formula is: CAGR = [(Ending Value / Beginning Value)^(1/N)] - 1, where N is the number of years. For example, if an investment grows from 1,000 to 2,000 in 5 years, CAGR = [(2000/1000)^(1/5)] - 1 = 14.87%. It’s a key metric for evaluating long-term investment performance.
Related Terms
Buy and Hold
Buy and hold is a long-term investment strategy where investors purchase stocks or other assets...
Lump Sum
A lump sum is a single, one-time payment made in full, rather than in smaller,...
Free Cash Flow
Free cash flow (FCF) in accounting and earnings reports represents the cash a company retains...
Anaume Pattern
An Anaume Pattern is a technical chart pattern that occurs when a gap is filled...
Bottom Up Investing
Bottom-up investing is a stock selection approach that prioritizes the detailed analysis of individual companies...
Internal Rate Of Return
The Internal Rate of Return (IRR) measures the compound annual return of a financial asset,...
