Compound Annual Growth Rate (CAGR) is the annualized rate of growth in the value of a market, company, investment, or other financial metric over a specified period of time longer than one year. CAGR is one of the most accurate ways to calculate returns for anything that can rise or fall in value over time, and it’s used widely around the world in a variety of areas.
CAGR is a mathematical formula that shows a “smoothened” growth rate or rate of return as if the changes occurred evenly at the same rate over each period. It’s considered one of the best ways to evaluate the performance of a financial metric over time, or against a benchmark.
It’s important to keep in mind that although CAGR is a representational figure, it’s not a true growth or return rate.