For small-cap and midcap companies, a CAGR of 15% to 30% is good. Startup companies, on the other hand, should have a CAGR ranging from 100% to 500%.
Similarly, for small businesses, a CAGR of 15% to 30% is satisfactory. Furthermore, a company's CAGR must be consistent over time.
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.
For example, if you invested Rs 1,000 in a particular mutual fund, it grew at a CAGR of 10% over five years. It means that, on average, your investment would have increased by 10% each year. However, the actual growth in each year may vary.
Compound Annual Growth Rate or CAGR refers to the annual growth of an investment over a specific duration. The value of the investment is assumed to be compounded over the period. Unlike the absolute return, CAGR takes the time value of money into the account.
A fund showing 25% CAGR over 10 years may stabilize closer to average market returns, possibly between 12% and 15%, over 25 years. It is wise to assume moderate returns rather than extrapolating the past performance linearly.
A high CAGR with a low standard deviation suggests consistent growth with less risk. Look Beyond the Average: CAGR is an average, so the actual returns might have fluctuated significantly in some years. Consider the historical performance data to understand the investment's volatility.
CAGR (for Compound Annual Growth Rate) is the hypothetical constant interest rate that would be required for compound interest to turn a given present value into a given future value in a given amount of time. (In this graph, CAGR would be the interest rate required to grow the green bar into the blue bar.)
Although conceptually the same, CAGR and annualised returns differs as CAGR is showcased using the initial and ending investing values. On the other hand, annualised return is calculated by using the returns from multiple years.
What is the Rule of 72? Here's how it works: Divide 72 by your expected annual interest rate (as a percentage, not a decimal). The answer is roughly the number of years it will take for your money to double. For example, if your investment earns 4 percent a year, it would take about 72 / 4 = 18 years to double.
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 smooths out the volatile nature of year-by-year growth rates.
The company is often compared to an investment fund; between 1965, when Buffett gained control of the company, and 2023, the company's shareholder returns amounted to a compound annual growth rate (CAGR) of 19.8% compared to a 10.2% CAGR for the S&P 500.
There is no set percentage. Some agencies might be satisfied with a 5-percent ROI, while others might be on the lookout for a higher number like 20 percent for it to be considered good ROI.
However, CAGR is a good indicator of overall scheme performance. You can compare CAGRs of different mutual fund schemes and make informed investment decisions. You should consult with your financial advisor if required.
For irregular investments with detailed cash flow data, XIRR is often more useful and accurate than CAGR since it accounts for the timing and size of all cash inflows and outflows. However, for regular investments focused on long-term growth, CAGR may be sufficient and easier to calculate.
CAGR is defined as the annualized growth rate in the value of a financial metric – such as revenue and EBITDA – or an investment across a specified period. CAGR is calculated to measure the rate of change, expressed on an annual basis, wherein the effects of compounding are factored into the growth rate metric.
There are several differences between a compound annual growth rate and return on investment. Firstly, CAGR is used to find the growth rate of an investment of a company per year whereas ROI can be used for different time periods. This can make ROI more accurate than CAGR when calculating profit for an investment.
The compound annual growth rate (CAGR) is the annualized average rate of revenue growth between two given years, assuming growth takes place at an exponentially compounded rate.
In most cases, an ideal growth rate will be around 15 and 25% annually. Rates higher than that may overwhelm new businesses, which may be unable to keep up with such rapid development.
The IRR is also a rate of return (RoR) metric, but it is more flexible than CAGR. While CAGR simply uses the beginning and ending value, IRR considers multiple cash flows and periods—reflecting the fact that cash inflows and outflows often constantly occur when it comes to investments.