A CAGR in sales of 5-12 per cent is suitable for large-cap companies. Similarly, for small businesses, a CAGR of 15% to 30% is satisfactory. Furthermore, a company's CAGR must be consistent over time. As a result, a promising CAGR does not always imply the highest CAGR; it can also mean stable and constant growth.
You may consider CAGR of around 5%-10% in sales revenue to be good for a company. CAGR is used to forecast the growth potential of a company. For a Company with a track record of over five years, you may consider a CAGR of 10%-20% to be good for sales.
CAGR evens out all variations in the annual return rate of securities while considering an average of the same. For example, a stock market instrument can have a return of 25% during the first period of investment, 9% in the second year, 19% in the third year, and 17% in the fourth year.
Usually, anything under an 8% CAGR is poor, but a good rate really does depend on the specific organisation. For example, companies who have been around for 10 or more years may see a CAGR of 8%-12% which is a good rate of sales for the amount of time they have been in business.
The Rule of 70 Formula: It means, the doubling time is simply 70 divided by the constant annual growth rate. For instance, consider a quantity that grows consistently at 5% annually. According to the Rule of 70, it will take 14 years (70/5) for the quantity to double.
For companies with large capitalization, a CAGR in sales of 5% to 12% is good. 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%.
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.
CAGR is a simple metric that measures the average rate of growth of a sum, be that a figure like sales or an investment, over any number of periods. It's easy to picture visually: In Example 1 above, a $1.00 investment grows by 20% for three years to a value of $1.73. The CAGR is 20%.
Most investors would view an average annual rate of return of 10% or more as a good ROI for long-term investments in the stock market. However, keep in mind that this is an average. Some years will deliver lower returns -- perhaps even negative returns. Other years will generate significantly higher returns.
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.
Less than 15 percent: Although many may consider this rate rather unspectacular, a firm will double its size in five years while growing at a 15 percent rate. 15 percent to 25 percent: Rapid growth. 25 percent to 50 percent annually: Very rapid growth. 50 percent to 100 percent annually: Hyper growth.
What is CAGR? CAGR, or Compound Annual Growth Rate, measures the rate of return of an investment over a certain period, in percentage terms. In other words, CAGR is the imaginary growth rate at which an investment is expected to grow steadily on an annually compounded basis. CAGR is also known as an annualised return.
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.
The price cagr for SPDR S&P 500 ETF Trust (SPY) stock is 21.21% over the past 12 months. The 3 year average growth rate is 6.88% and the 5 year cagr is 12.17%.
Disadvantage of CAGR: Smoothing and Risk
One disadvantage of the Compound Annual Growth Rate is that it assumes growth to be constant throughout the investment's time horizon. This smoothing mechanism may yield results that differ from the actual situation with a highly volatile investment.
However, the CAGR should ideally be more than the saving account interest rate for most investments – equity or fixed income. Historically, in the long term, large and strong companies have given a return between 8% to 12% to their investors.
A good CAGR for large companies in an industry ranges from 8% to 12%, whereas high-risk companies aim for a compound annual growth rate between 15% to 25%.
Healthcare And Insurance
India's healthcare and insurance sectors have witnessed remarkable growth in recent years.
Stock Market Average Yearly Return for the Last 20 Years
The historical average yearly return of the S&P 500 is 10.475% over the last 20 years, as of the end of December 2024. This assumes dividends are reinvested. Adjusted for inflation, the 20-year average stock market return (including dividends) is 7.719%.