Compound annual growth rate
Compound annual growth rate (CAGR) is a fancy way of saying how much something grows over time. It's like measuring how much taller you get every year, but for things like money or investments.
Let's say you have $100 and you put it in the bank. The bank pays you 10% interest every year. After one year, you'll have $110 because of the interest. But if you put that $110 back into the bank, the next year you'll earn interest not only on your $100, but also on the $10 interest you earned last year. So the second year you'll earn $11 in interest instead of $10, for a total of $121 in your bank account.
This keeps happening each year, with the interest rate staying the same but the amount of money growing each time. That's why it's called compound growth - because you're growing not just on the original amount of money, but on the interest that has added up each year.
The compound annual growth rate is the average rate at which your money has grown each year over a certain period of time. If you started with $100 and ended up with $200 after 5 years, your CAGR would be about 14%. That means your money grew at an average rate of 14% each year, even though some years it might have grown faster or slower than that.
So CAGR is a way to measure the overall growth of something over time, taking into account how much it grows each year and how long it's been growing.
Let's say you have $100 and you put it in the bank. The bank pays you 10% interest every year. After one year, you'll have $110 because of the interest. But if you put that $110 back into the bank, the next year you'll earn interest not only on your $100, but also on the $10 interest you earned last year. So the second year you'll earn $11 in interest instead of $10, for a total of $121 in your bank account.
This keeps happening each year, with the interest rate staying the same but the amount of money growing each time. That's why it's called compound growth - because you're growing not just on the original amount of money, but on the interest that has added up each year.
The compound annual growth rate is the average rate at which your money has grown each year over a certain period of time. If you started with $100 and ended up with $200 after 5 years, your CAGR would be about 14%. That means your money grew at an average rate of 14% each year, even though some years it might have grown faster or slower than that.
So CAGR is a way to measure the overall growth of something over time, taking into account how much it grows each year and how long it's been growing.
Related topics others have asked about: