Compound annual growth rate

Compound annual growth rate (CAGR) is a business and investing specific term for the geometric progression ratio that provides a constant rate of return over the time period. CAGR is not an accounting term, but it is often used to describe some element of the business, for example revenue, units delivered, registered users, etc. CAGR dampens the effect of volatility of periodic returns that can render arithmetic means irrelevant. It is particularly useful to compare growth rates from different data sets such as revenue growth of companies in the same industry.

Formula

 : start value,  : finish value,  : number of years.

Example

In this example, we will compute the CAGR over three periods. Presume that the year-end revenues of a business for four years, V(t) in above formula, have been:

Therefore, to calculate the CAGR of the revenues over the three-year period spanning the "end" of 2004 to the "end" of 2007 is: