Meaning and formula
CAGR is the annualized rate that, under a constant compound-growth model, links a starting value to an ending value. For positive starting values, divide the ending value by the starting value, raise the result to the power of one divided by the number of years, and subtract one: CAGR = (ending value ÷ starting value)^(1 ÷ years) − 1. This describes the period as a model; it is not the actual growth in every individual year.
Illustrative example
If an indicator hypothetically grows from 100,000 to 121,000 roubles over two years, its CAGR is 10% per year. The first year could in reality have been weak and the second strong: the calculation does not reveal the path between the endpoints.
What CAGR does not show
CAGR is not the simple average of annual changes and does not measure risk. For an investment account, contributions and withdrawals make a straightforward calculation from the opening and closing amounts inappropriate. Zero or negative starting values also require another method. When comparing results, state the period, units and whether distributions to the investor are included.