CAGR
Also known as: compound annual growth rate
CAGR, short for compound annual growth rate, is the steady yearly growth rate that would take a number from its starting value to its ending value over a set number of years. It smooths out the ups and downs along the way into one annual figure.
The formula is:
(Ending value / Starting value) ^ (1 / Number of years) - 1If grew from $100 million to $161 million over five years, the CAGR is about 10%, even if some years grew 20% and others barely moved. That makes CAGR useful for comparing growth across companies or periods of different lengths, and analysts often quote forecasts as a three to five year CAGR.
Because it only looks at the first and last values, CAGR hides how bumpy the path was and is sensitive to the years chosen. Starting from a weak year inflates it, and ending on a peak year does the same, so check the yearly figures behind any CAGR before relying on it.