In business growth analysis, what does CAGR stand for?

In business growth analysis, CAGR stands for compound annual growth rate.

CAGR describes the constant annual rate that would turn an initial value into a final value over a specified period, assuming annual compounding. It is calculated as the final value divided by the initial value, raised to the power of one divided by the number of years, minus one.

For example, an investment growing from 100 to 121 over two years has a CAGR of 10%, because 100 compounded at 10% annually becomes 121. The measure is useful for comparing growth across businesses, markets, or investments with different starting values.

CAGR is a smoothing calculation rather than a record of what happened each year. Actual yearly results may rise and fall substantially. It also does not show volatility, interim cash flows, or the risks behind the reported growth.