Compound Annual Growth Rate (CARG)

CARG measures an investment’s rate of return over a set period, usually more than a year, assuming the profits are reinvested back from the beginning to the ending balance.

This business metric considers the effect of compounding that gives a smoothed yearly growth rate. If the rate is maintained over a specified time frame, it would yield a steady and equivalent rate of return. The smoothed annual growth eliminates the effect of fluctuations or volatility that may arise during the specified period. It’s vital to understand that CARG is not the actual measure of the rate of return but a forecasting method of how an investment may grow at a steady or same rate.