CAGR - A Useful Tool to Measure a Company Growth
Some might wondering what is CAGR when looking at my article. As CAGR is one of my favourite tool in calculating company or industry growth.
CAGR is the short form of Compound Annual Growth Rate. It represents the rate of return that would be required for an investment to grow from its beginning balance to its ending balance. This is the explanation that i copy from Investopedia.
This is the formula for calculating CAGR, also from Investopedia. Investopedia has been my best friend since I was in university.
For better understanding, I will use a random company as example. Let's name it as ZOROS.
ZOROS 5-years CAGR from 2014 to 2019 is 18%. Assume its revenue at 2014 is RM100,
On 2015, its revenue should be: RM100 x (1+18%) = RM 118
On 2016, the revenue is: RM 118 x (1+18%) = RM 139.24
On 2017: RM 139.24 x (1+18%) = RM 164.30
On 2018, RM 164.30 x (1+18%) = RM 193.87
On 2019, RM 193.87 x (1+18%) = RM 228.76
Applying the formula from my best friend, Investopedia, you will get the same CAGR:
CAGR = (228.76/100)^1/5 -1 = 18%
But after i start working as an auditor, I found another good friend in the firm. She is good in calculating. Her name is excel. She taught me an easier way to calculate CAGR.
The formula is:
=RRI(nper,pv,fv)
nper: Number of periods
pv: Present value of investment
fv: Future value of investment
Looks, with a simple formula, you will be able to calculate CAGR, without remembering the complex formula, or calculate it year by year. Nevertheless, I would like to thanks excel and investopedia for being my best life companion. Adiós!
CAGR is the short form of Compound Annual Growth Rate. It represents the rate of return that would be required for an investment to grow from its beginning balance to its ending balance. This is the explanation that i copy from Investopedia.
This is the formula for calculating CAGR, also from Investopedia. Investopedia has been my best friend since I was in university.
For better understanding, I will use a random company as example. Let's name it as ZOROS.
ZOROS 5-years CAGR from 2014 to 2019 is 18%. Assume its revenue at 2014 is RM100,
On 2015, its revenue should be: RM100 x (1+18%) = RM 118
On 2016, the revenue is: RM 118 x (1+18%) = RM 139.24
On 2017: RM 139.24 x (1+18%) = RM 164.30
On 2018, RM 164.30 x (1+18%) = RM 193.87
On 2019, RM 193.87 x (1+18%) = RM 228.76
Applying the formula from my best friend, Investopedia, you will get the same CAGR:
CAGR = (228.76/100)^1/5 -1 = 18%
But after i start working as an auditor, I found another good friend in the firm. She is good in calculating. Her name is excel. She taught me an easier way to calculate CAGR.
The formula is:
=RRI(nper,pv,fv)
nper: Number of periods
pv: Present value of investment
fv: Future value of investment
Looks, with a simple formula, you will be able to calculate CAGR, without remembering the complex formula, or calculate it year by year. Nevertheless, I would like to thanks excel and investopedia for being my best life companion. Adiós!
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