How To Insert CAGR Formula in Spreadsheets on MS Excel – Guide
Investors can measure the growth of their investments over time with the Composite Annual Growth Rate (CAGR). For instance, if an investor purchased shares worth $100 in 2011 and they are now valued at $400, CAGR would indicate the rate of growth each year.
Stock markets are notoriously unpredictable, with speculation and returns varying from year to year. CAGR can help investors smooth out their returns, providing a more consistent rate of growth over time.
Checking compound annual growth rate (CAGR) in Excel is easy with the right functions. This article explains how to use Excel to calculate CAGR and create clear, straightforward recipes.
The CAGR Formula
Investment analysts and business owners often rely on CAGR, or compound annual growth rate, to analyze investments. This formula takes into account a series of values over multiple years to calculate the average annual percentage increase. For example, if an investment grows 23%, 11% and 13% in three separate years, CAGR can be used to determine the average annual increase.
The average annual growth rate of an investment can be calculated using CAGR, which takes composition into account. This is different from simply adding 23%, 11%, and 13% and dividing by three, which would give an average of 15.66%. CAGR gives the actual average annual rate of return on an investment.
Google Sheets doesn’t have the CAGR formula built in, but it’s easy to calculate with the program.
The CAGR formula calculates the average rate of return over a given period of time. It takes the ratio of the final value (EV) to the initial value (BV), raises it to the power of 1 divided by n (the number of time periods, usually months or years), and subtracts one.
How to Add CAGR formula to worksheets
Create a CAGR calculator in your spreadsheet. To do this, enter the initial and final values along with the number of periods into a calculator to get the composite average growth rate. Then, use an online calculator to verify that your spreadsheet version is accurate.
Users can create a spreadsheet in Sheets to track changes over time by entering “Start Value” in cell B3, “Value final” in cell B4, and “Number of Periods” in cell B5. Widening column B may be necessary to fit the row header.
You can now add the CAGR formula to your worksheet. Enter ‘The CAGR’ in cell B7, select C7 and click on the fx bar. Type ‘= (C4 / C3) ^ (1/2) -1’ into the fx slash and press Return. This will display the compound annual growth rate formula in cell C7, though it may show a divide-by-zero error message due to a blank value final.
Insert ‘1,000’ into cell C3 and ‘2.250’ into cell C4 of the spreadsheet. Then, enter ‘4’ in C4 to indicate the number of time periods.
Cell C7 can be converted to a percentage by selecting it and pressing the Format as percentage button. This will display the compound annual growth rate value of 22.47%.
To finish off the compound annual growth rate calculator, add some formatting. Select the range of cells B3:C7 and click the borders button on the toolbar. This will add borders to all cells in the calculator.
Select cells B3:B7 and press the bold button on the toolbar to add bold text formatting to headings.
You can give your calculator cells a splash of color by selecting them and clicking the Fill Color option on the toolbar. This will open a palette of colors to choose from.
The POW function
The POW function in Sheets can be used to calculate the CAGR. To do so, the base is the final value divided by the initial value and the exponent is 1 divided by n.
To calculate the compound annual growth rate (CAGR) of a given set of data, type ‘=POW (C4 / C3,1/C5) -1’ into cell C8 on your spreadsheet and press the Return key. Then convert the formatting to percent. This will give you the same result as another method in cell C7.
Final note
We’ve created a guide to help you insert the CAGR formula into spreadsheets on MS Excel. If you have any questions, please reach out to us. We’d also appreciate it if you shared this article with your friends.
