Analysis$-$ What is CAGR?

CAGR stands for the Compound Annual Growth Rate. It is the measure of an investment's annual

growth rate over time, with the effect of compounding taken into account. It is often used to measure

and compare the past performance of investments or to project their expected future returns.

Understanding the formula used to calculate CAGR is an introduction to many other ways that

investors evaluate past returns or estimate future profits.

What Is the Difference Between the CAGR and a Growth Rate?

The main difference between the CAGR and a growth rate is that the CAGR assumes the growth rate

was repeated, or "compounded," each year, whereas a traditional growth rate does not. Many investors

prefer the CAGR because it smooth's out the volatile nature of year$-$by$-$year growth rates. For instance,

even a highly profitable and successful company will likely have several years of poor performance

during its life. These bad years could have a large effect on individual years' growth rates but would

have a relatively small impact on the company's CAGR.

Let's take a look at a couple of examples below

Example One $-$ The global fast fashion market is expected to grow from $96\mathrm{.}3$ billion in $2022$ to

$$133\mathrm{.}43$ billion in $2026$ at a compound annual growth rate $($CAGR$)$ of $7\mathrm{.}7\%.$

There are $5$ years between $2022$ and $2026.$ The formula is Ending Year minus Beginning Year divided

by Beginning Year. Once you get that answer you then divide by the number of years in the calculation

For example $($in Billions$)133\mathrm{.}43-96\mathrm{.}3/96\mathrm{.}3=\mathrm{.}3855.$ Multiply by $100$ to get a percent!

$38\mathrm{.}5\%$ is the CAGR over $5$ years

$38\mathrm{.}5\%$ divided by $5$ years $=7\mathrm{.}7\%$ per year!

Note: that a CAGR does not differentiate between the yearly fluctuations BUT rather gives an average

dividing the total years.

Example Two$-$ Secondhand merchandise is becoming a Global Phenomenon, expected to Grow $127\%$

by $2026$ to $218$ billion.

It is currently at $96$ billion in $2021.$

Ending Year $=$ EY

Beginning Year $=BY$

$($In Billions$)$

Formula $EY-B\frac{Y}{B}Y=$$ difference.

$218-96=122,\frac{2\mathrm{.}122}{96}=1\mathrm{.}27$

$ Difference x $100=$ CAGR $\%$

$1\mathrm{.}27100=127\%$ total CAGR

CAGR $\%$ divided by number of years $=$ Annual growth rate $($each year average$)$

$127\%/6$ years $=21\mathrm{.}16\%$ per year

Note that CAGR is mainly used to calculate multiple years of growth. It does this to "smooth over" the

growth rate of year to year fluctuations.Financial Goal Setting & CAGR. Creating the Statement of Strategy and Substantiation Complete a financial CAGR $($see page $94$ in your Manual$).$ Select a public company.

Report their most recent Revenue from the Income Statement.

Use the expected growth of $85\%$ in five years$$ time.

What is the CAGR $\%$ per year for that company?

Show all math in your work.