Introduction to Compound Annual Growth Rate Calculator
CAGR Calculator is a smart calculation tool that aids you in calculating the compound (interest) annual growth rate. Whereas the full form of CAGR is "Compound Annual Growth Rate".
The compound annual growth rate calculator has been designed to help you in evaluating the compound interest's value of any invested amount in terms of its annual growth.
Before getting to know about the application and usage of CAGR Calculator, let us make you aware of some terminologies concerned with it. So that it becomes easier for you to calculate the compound annual growth rate of any investment.
Related: Learn about return on investment and return on assets along with their formulas, types and calculation methods.
What is Compound Interest?
Let's proceed by describing the term compound interest. Compound Interest refers to the "Interest on Interest". This "interest on interest" phenomenon can be elaborated as follows:
The additional amount of interest is added into the borrowed/invested money as per the growing value of the borrowed/invested money, annually.
Let us make it more clear to understand by considering an example of compound interest.
For example, if you have invested $10,000
At a 10% interest rate, then the grown amount of your investment after the first annual interval will be $11,000.
Whereas, the further interest amount into your invested money will be added as per the new principal sum "$11,000,
Which means the interest amount of 10% will be added as per the accumulated amount of $11,000, not on the basis of the previous/initial invested amount. So, the new principal sum will be "$12,100".
Likewise, in the next following year, after the addition of the compound interest. the principal sum will be $13,310.
Related: Learn about profit margin and its types along with the ways through which we can calculate different types of margins.
What is Compound Annual Growth Rate?
Now, let's move ahead to elaborate Compound Annual Growth Rate.
CAGR determines the return rate that is required to get the expected future value of the invested amount with respect to a compound interest rate.
Let's reconsider the above example in a different way. For example, if you have $10,000, and you want to invest this amount to get $13,310 dollars in return. Whereas the compound interest rate is 10%, and the time period of the return is 3 years. Then, the growth rate would be 33.1%.
33.1% growth rate is required for the initial amount "$10,000" to reach its final value of "13,310" in 3 years of return at the compound interest rate of 10%.
As a businessman you must have the understanding of your assets and you need to calculate whether the value of your assets are depreciating. You also need to calculate earning before interest in order to perform better for your company. Learn more about ebitda and its importance from here.
How to Use the CAGR Calculator?
So, as you are now aware of the compound interest, and the compound annual growth rate, we can move ahead to throw light on the usage of the CAGR calculator.
The Compound Annual Growth Rate Calculator is used to find the annual growth rate of the compounding value of your invested or borrowed amount. You aren't required to put any mathematical formula or do any such complex mathematical operations to calculate the CAGR.
CAGR Calculator is so smart in doing so that it only requires you to put the present value, final value, and the annual period of the return. Just by giving the amount of these required values, this tool will automatically calculate the Compound Annual Growth Rate of your invested or borrowed amount.
Follow the following steps to use this smart CAGR Calculator:
Step 1: Enter the Present Value of your invested/borrowed amount
Step 2: Enter the Future Value of your invested/borrowed amount
Step 3: Enter the periods of time of investment/return of the amount
Step 4: Press CALCULATE to see the results
Whereas the Present Value refers to the initial/starting amount of the invested or borrowed money, and the Future/ending value is the final or expected amount of money to be gained after the addition of the compound interest as per the specified time period of the investment. Or else, the specified time period can vary from 1 year to 2, 3 or so on.
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