In Excel, how can I compute CAGR?
Knowing your compound annual growth rate is very helpful whether you are a business owner, investment manager, or financial assistant. It gives you a brief snapshot of how your company has developed, which opens you new avenues for opportunity. Compare revenue from other years, consider what went well, and repeat the process.
The CAGR calculation method used in this article is Microsoft Excel. Although there isn’t a dedicated function to accomplish this, you may approach the computation in a number of various ways and still get reliable answers. Let’s get going! (Microsoft Office 2019)
Compound Annual Growth Rate: What Is It?
What is the equation to determine the compound annual growth rate?
An overview of how to compute CAGR using Excel and by hand is provided below.
CAGR: What Is It?
Simply expressed, the Compound Annual Growth Rate (CAGR) is used to gauge an investment’s return over a certain period of time. Although it isn’t an accounting phrase, financial professionals utilize it to assess diverse scenarios and come to more well-informed judgments.
Let’s utilize a real-world scenario to illustrate CAGR. We’ll examine a stock’s year-end pricing in this case. This number fluctuates every day, frequently iniquitously. We may determine the single rate that represents the return for the full measurement period using CAGR:
2018 stock price: $140
2019 stock price: $155
2020 stock price: $170
As you can see, the growth rate fluctuates from year to year. However, we can get a single growth rate for the whole time span using the CAGR method.
How to calculate CAGR in Excel (Excel CAGR formula)
As of this writing, Excel lacks a specific method for computing Compound Annual Growth Rate (CAGR). Fortunately, there are a few different formulae you may use for this. Below are two guidelines that we put together using two distinct methods of approaching the math.
How is the CAGR determined?
These instructions were created with the most recent version of Microsoft Excel 2019 on Windows 10. Some steps could change if you’re using a different platform or version. If you require further help, get in touch with our professionals.
Method 1: Use the Excel CAGR method to calculate CAGR manually.
You can quickly develop a calculator if you know the general CAGR formula. The three values shown below must be specified in your worksheet:
- Open the appropriate document you want to work with in Microsoft Excel or start a new one. Before moving on to the guide, make sure your worksheet(s) include data.
- Enter your formula after choosing an output cell to store the final CAGR value. Your CAGR may be calculated using the following simple formula:
- BV stands for the investment’s initial value.
- EV – Investment’s final value
- Number of periods is n.
- This is how your formula should appear: =(EV/BV)(1/n)-1. The equation in our example would be =(B2/B1)(1/B3)-1.
Example of a CAGR formula
- Done! You may use this formula to compute your compound annual growth rate whenever necessary.
2. Apply the RRI formula.
Currently, the RRI calculation in Excel is a different method of determining your CAGR. The total number of periods, start value, and finish value are its additional three main inputs. Once more, we’ve included an example below that demonstrates how to utilize this method.
- Open the appropriate document you want to work with in Microsoft Excel or start a new one. Before moving on to the guide, make sure your worksheet(s) include data.
- After choosing the output cell that will contain the final CAGR number, enter the RRI formula:
- the total number of periods, or nper.
- The investment’s current value is expressed as PV.
- The investment’s future value is expressed as fv.
- Your equation must resemble this: =RRI (nper,pv,fv). The equation in our example would be =RRI (B3,B1,B2).
- Done!
3.Use the CAGR calculator template as a third option.
Download the CAGR formula Excel template
You won’t ever need to worry about calculating your CAGR again thanks to our automatic calculator. You may quickly obtain this value without manually entering calculations using the Vertex42 Online CAGR Calculator and the associated Excel template.
Last thoughts
We hope that this post has shown you how to use Excel’s algorithms to determine your CAGR. You may now view important information about your development and use the findings to guide your decisions. We hope your adventure is successful! Please contact us if you require any more assistance.
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