BQLearning is a show that seeks to demystify financial markets, economic theories, legal processes and political structures. This series focuses on financial market jargon.
Compounded annual growth rate, or CAGR, is used to track the performance of a company over a specified period of time, longer than one year.
Essentially, it’s a number that describes the rate at which an investment would have grown if it had grown at a steady rate, without any volatility. In other words, it’s a way to smooth out the return from investments over time so that they may be more easily understood.
CAGR is one of the best ways to measure how a company’s stock price has done versus its earnings.
Anupam Gupta, independent consultant at Aavan Research, explains why it’s an useful measure to calculate growth over a longer time horizon.