Compound Growth Rate

Compound growth rate

See: Compound Annual Growth Rate

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compound growth rate

The percentage rate, generally stated on an annual basis, at which a variable grows adjusted for compounding. For example, a 7% compound growth rate for ten years results in $100 growing to slightly less than $200. Without compounding, the $100 would earn $7 per year and grow to only $170. Financial analysts frequently use historical and projected compound growth rates in analyzing earnings, sales, and dividends.

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Compound Growth Rate

Average, year-on-year growth rate of an investment over a number of years. While investments usually do not grow at a constant rate, the compound annual growth rate smoothes out returns by assuming constant growth. This makes accounting for the investment tidier. It is calculated as:

CAGR = (Ending Value / Beginning Value)^((1 / n) - 1) where n is the length of time of the investment in years. It is also called a compound annual growth rate. See also: Average Annual Growth Rate.