With this article, you can learn how to calculate CAGR, the Compound Annual Growth Rate, in Excel. The Compound Annual Growth Rate is the year-over-year growth rate of an investment over a specified period of time. It is calculated by taking the nth root of the total percentage growth rate, where n is the number of years in the period being considered. The formula for CAGR is [(Ending Value/Beginning Value)^(1/(# of years))]-1 .
CAGR isn't the actual return in reality. It's an imaginary number that describes the rate at which an investment would have grown if it grew at a steady rate. You can think of CAGR as a way to smooth out the returns.
Steps
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Open Microsoft Excel. Either click on the green X icon on the dock or opening it from the Applications folder in Microsoft Office.
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Open a New Workbook.Advertisement
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Enter the Headings/Defined Variables:
- Enter to cell A1 the label, CAGR
- Enter to cell B1 the label, Ending_Value
- Enter to cell C1 the label, Beginning_Value
- Enter to cell D1 the label, _1_OverYears
- Enter to cell E1 the label, Years
- Enter to cell F1 the label, _1
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Highlight columns B:F and select Insert from the top menu. Click Names > Create and choose Top Row
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Enter the formulas and values:
- Enter to cell A2 an = and then the formula ((Ending_Value/Beginning_Value)^(_1_OverYears))-_1
- Enter to cell B2 the Ending Value of the investment, e.g. 23,512
- Enter to cell C2 the Beginning Value of the investment, e.g. 14,500
- Enter to cell E3 the number of Years the investment was outstanding up to the Ending Value, e.g. 3
- Enter to cell D3 an = and then the formula, 1/Years .
- Enter to cell F3 the value, 1
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Format your cells:
- Highlight columns A:F and select Format from the top menu. Click Column and then AutoFit Selection , and Alignment Center .
- Highlight column A and choose Format , then Cells . Under the Number menu, and Percentage category, choose 2 decimal places.
- Highlight columns B:C and choose Format , then Cells . Under the number Number in the Custom category, enter $#,##0
- Highlight column D and choose Format , then Cells . Under the Number menu in the Number category, enter .0000
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Review the value in cell A2. For the example numbers given, you should see a CAGR result of 24.93% Thus, your CAGR for your three-year investment is equal to 24.93%, representing the smoothed annualized gain you earned over your investment time horizon.
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Then you would construct a Table of similar investments:Advertisement
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