When analyzing investments, it’s essential to measure returns accurately over time. A CAGR calculator helps investors determine the compound annual growth rate (CAGR) of an investment, providing a clearer picture of its performance. Combined with a stock market screener, investors can identify stocks with consistent growth potential.
What is CAGR?
CAGR (Compound Annual Growth Rate) represents the average annual growth rate of an investment over a period, assuming profits are reinvested. It smooths out fluctuations, making it a useful metric for comparing different investments.
How to Calculate CAGR?
The formula for CAGR is:
CAGR=(EVBV)1n−1CAGR = \left( \frac{EV}{BV} \right)^{\frac{1}{n}} – 1
Where:
- EV = Ending Value of Investment
- BV = Beginning Value of Investment
- n = Number of Years
For example, if you invested ₹10,000 in a stock, and after five years it grew to ₹20,000, the CAGR would be:
CAGR=(2000010000)15−1=14.87%CAGR = \left( \frac{20000}{10000} \right)^{\frac{1}{5}} – 1 = 14.87\%
Why Use a CAGR Calculator?
Manually computing CAGR can be complex, especially for multiple investments. A CAGR calculator simplifies the process, offering instant results with minimal effort.
CAGR vs. Other Growth Metrics
- Absolute Returns: Shows total returns but doesn’t account for time.
- Annualized Returns: Similar to CAGR but considers multiple investment periods.
- XIRR: Useful for irregular cash flows, unlike CAGR, which assumes uniform investment.
How to Use CAGR in Stock Market Investing
- Compare Stocks & Mutual Funds – Use a stock market screener to shortlist high-growth stocks, then apply a CAGR calculator to evaluate their performance.
- Assess Business Growth – Companies with a strong CAGR in revenue, earnings, or stock price over time indicate stable growth potential.
- Portfolio Performance Analysis – Calculate CAGR for your entire investment portfolio to measure overall growth.
Limitations of CAGR
- It assumes consistent growth, which is rarely the case in real markets.
- It doesn’t factor in market volatility, which can impact short-term investments.
- It may not be ideal for investments with varying cash inflows, where XIRR is more useful.
Conclusion
A CAGR calculator is an essential tool for investors looking to analyze investment growth efficiently. When combined with a stock market screener, it helps identify profitable opportunities, making it easier to compare stocks and mutual funds. While CAGR is a powerful metric, investors should also consider other financial indicators to make well-informed decisions.
