CAGR: Difference between revisions
imported>Doug Williamson (Standardise appearance of page) |
imported>Doug Williamson (Expand the page and extend examples and interpretation.) |
||
| Line 2: | Line 2: | ||
The compound annual growth rate is calculated from total growth over a longer period as: | |||
CAGR = | CAGR = ( End amount / Starting amount )<sup>(1/n)</sup> - 1 | ||
Where | ''Where:'' | ||
n = number of years between the two points sampled | |||
<span style="color:#4B0082">'''Example 1'''</span> | |||
CAGR is: | Sales have grown from $100m to $150m over the most recent 2-year period. | ||
The CAGR is: | |||
= ( 150 / 100 )<sup>(1/2)</sup> - 1 | = ( 150 / 100 )<sup>(1/2)</sup> - 1 | ||
= 22.5%. | = 22.5%. | ||
During this particular 2-year 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 interest]] | * [[Compound interest]] | ||
* [[YOY]] | |||
* [[Extrapolation]] | |||
Revision as of 07:33, 14 November 2015
Compound Annual Growth Rate.
The compound annual growth rate is calculated from total growth over a longer period as:
CAGR = ( End amount / Starting amount )(1/n) - 1
Where:
n = number of years between the two points sampled
Example 1
Sales have grown from $100m to $150m over the most recent 2-year period.
The CAGR is:
= ( 150 / 100 )(1/2) - 1
= 22.5%.
During this particular 2-year 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.
Example 2
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 )(1/0.25 = 4) - 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.
