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This question is about what a finance analyst does.
What is CAGR in finance?
A CAGR in finance is the Compound Annual Growth Rate and refers to the yearly average rate of revenue growth between two specific years.
The CAGR is the rate of return that would be needed for an investment to grow from its initial balance to its ending balance. This works under the assumption that the profits are reinvested at the end of each timeframe of the investment's overall life span.
The compound annual growth rate is one of the most accurate calculations to determine returns on investments that can increase or decrease over a period of time. CAGR also measures a smoothed rate of return.
It is also very useful to compare how different investments have performed against a specific benchmark, or over a period of time.
To calculator CAGR, follow these steps:
Divide the value of a specific investment at the end of a timeframe by its initial value at the beginning of that period
Increase the result to an exponent of one divided by the number of years
Subtract one from the result of that arithmetic
Multiply that figure by 100 to convert the answer into a percentage
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