Enjoyed this explanation of CAGR? Then please subscribe to my channel, and as a next step watch my video on how to calculate weighted average revenue growth for a company with multiple business units ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-v9PPiUlkMEs.html
Watched 5 videos, was completely confused, then I saw this one and it finally clicked. You did a great job anticipating where I would be confused and was ready with examples to help me overcome them. Great work
@@TheFinanceStoryteller 1 thing I dont understand. For VSP.TO (sp500), in march 2016 price per stock was around $35, and now in april 2021 the price is around $70, that means the price went up by 100% in last 5 years. From 2016 to 2021 the price went up by 20% each year. If compounding were in effect, the math should be $35+20%= $42, $42+20%= $50.4 $50.4+20%= $60.48 $60.48+20%= $72.57 $72.57+20%= $87.09. If compounding were in effect the price per VSP stock should now be $87. why is it only $70 now?
@@asdasd-lq2hd In getting from $35 to $70 over a 5-year period, the CAGR is 15%. Excel Formula =POWER(70/35;1/5)-1 The intermediate steps in compounding (multiply each time by 1.15) are (rounded) $40 $46 $53 $61 $70.
Glad you liked it, Micky! I have a very hard time remembering the formula myself, so sometimes go back to deriving it first in the way I am showing in the video. 😂
Thank you! Your videos are a key part of my education, as I take MBA Finance classes (with no Finance experience and little math skill) and am lost in most classes and have to come home to view your videos on each subject covered in class to finally understand. Again--THANK YOU SIR!
Happy to help, Michael! I hope I have many of the key MBA topics covered on my channel. In fact, I started a playlist named "Finance for MBA" that you could scroll through: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-mZBjsIYrLvM.html I try to respond to questions and comments on my videos within a day, so feel free to ask specific questions on a topic while/after you're watching.
Thank you very much for the kind words!!!! I recently made a follow-up video "How to calculate sales growth in Excel" where I apply CAGR ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-G_BxZ0Bb1Mc.html
Glad it was helpful, George! I have played around with AAGR and CAGR more recently in my video on how to calculate sales growth, that might be interesting for you to watch as well: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-G_BxZ0Bb1Mc.html
THANK YOU SOOO MUCH! My boss had talked about CAGR but I felt dumb asking for an explanation and watching your video explained it so easily for me. Thank you! Maybe next you can teach us APR vs Interest rates when it comes to home buying and what they mean or how to compare loan offers! Cause there aren't any good videos at all out there!
You're welcome, Josh! :-) CAGR is used very frequently in corporate presentations, and I would guess that more than half of the audience doesn't know what it means, so there's a big growth market for my video. ;-) Thanks for the suggestion on making a video on APR, I will have to do some research myself as I live debt-free so don't come across it very often.
Great to hear that! Have a look around to see if there are any more videos that could be helpful for you. I personally learn a lot by "simply" (😉) going through the financial statements of various companies: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-PI9X5Ybek_E.html&pp=gAQB
Thank you, Guneet! Part of the reason I do that is that I have a hard time remembering the formula, so I always do a quick derivation myself just to check I get it right. ;-)
That's great to hear! One of my goals is to make finance and business related content more accessible to people that aren't familiar with finance yet. :-)
So I did something bad. I asked GPT to help me get my CAGR for Business Plan. Got back feedback from my incubator and well feedback said all good but CAGR bad. Asked GPT again but I'm tired and just decided to youtube it. First search first watch and couldn't have understood it better. Thank you Sir! I owe you a Finnish Fazer Chocolate!
"To calculate the CAGR of an investment: -Divide the value of an investment at the END of the period by its value at the START of that period. -Raise the result to an exponent of one divided by the number of years. -Subtract one from the subsequent result." ... From Investopedia. Though seemingly an immaterial issue, I feel it is VASTLY different...Year 1 is a RETROSPECTIVE assessment which at least gives some amount of foundation to predict subsequent PROTECTIVE years. Despite this disagreement in this definition, I feel your channel is overall WONDERFUL!!! TY!
Hi Matt! Take a look at some investor presentations of companies to see how CAGR is applied in real life. I have one from a January 2020 conference that I am reviewing where the company states regarding organic revenue growth: our 2011-2013 CAGR was (1%), 2014-2016 6%, 2017-2019 7%, and then estimated 2020-2022 6-9%. So you can apply CAGR calculations to historical actual numbers, as well as forecasted numbers for the future. Unfortunately, due to the pandemic, the growth prospects (at least for 2020) did not materialize.
Glad it came across well! I have applied CAGR in a recent example of sales growth rates in Excel, to analyze Tesla's revenue growth in the past decade: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-G_BxZ0Bb1Mc.html
You can calculate CAGR like this in Excel ( or Google Sheets ) but there is a built in function for that in both called RRI. Also Excel has geometric mean function which is essentially that same as CAGR.
Thank you very much, George! Apparently the RRI function was introduced in Excel 2013, most of the CAGRs that I calculated were prior to that. RRI works very well, just inputting the number of periods, the present value and the future value. Thank you for sharing.
@@ashwanisingh8267 Wonderful! Yes, please spread the word. I have organized related videos into playlists, that might help you navigate through the content as well.
Excellent explanation and formula derivation. Don't really have any other comments, other than it might have been useful to see what sorts of CAGRs different industries (or is it as specific as companies) see across, say, a 5 year period. Guessing tech start-ups see huge CAGRs, for instance (50%+?).
Thanks for the feedback! I usually include real life examples in the second half of my videos, but did not do that in this CAGR one. You can indeed calculate CAGRs for industries as well as companies. Not sure whether tech startups would talk about CAGR, I think "10X" is the preferred term (how do we get to ten times as many users, etc.). Or Compound Monthly Growth Rate, as "annual" might be too slow for them. ;-) I use the latter term for my RU-vid channel, when I check views, watchtime and subscribers. Trying to always get at least 10% growth versus the previous month.
Paul Smith Thank you for the suggestions, will add them to the list of videos to make. In the meantime, here's a link to my playlist about the DuPont formula (ROE, ROA, ROS): ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-bhbDDSohJ84.html
Reinvesting your dividends will accelerate your returns. See my video "How to calculate stock returns" ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-TYzGGOk-8kE.html
For example, the ticker symbol "AVGO" has a 10-year CAGR of 37.83% and a dividend yield of 2.16%. This statement is not intended as an investment recommendation.
Yeah, that sounds about right if the share price went from $44 in November 2013 to $870 in November 2023. I would drop the decimals though, to avoid being misleadingly precise. It's not an exact science. And historical returns are no indication of potential future returns.
3:53 can you use Cagr to estimate the returns amt would be from year 6 to 10? Or is it better to use average growth rate frm years 1 to 5 to forecast year 6 to 10 returns?
great video. just one question, could you give an example where assuming the 20% year on year is true by working out CAGR could be a problem to an investor/ person who doesnt properly use the answer before making a decision? That's the only part of the explanation I would say is now needed to help me fully see the picture of what CAGR is and how it can be used both right and wrong if not putting it into context. thanks.
Hi Lisa! Not completely sure what your question is. CAGR is a just a mathematical calculation. You can apply it to historical (actual) numbers, and it gets used in projections for the future as well. Example of the first instance: I was looking at the revenue numbers of a high growth company yesterday that had revenue of $77MM in 2015, and $553MM in 2019, hence a CAGR of 64%. I don't take the actual values of 2016, 2017 and 2018 into account, I just want to know what the year-on-year growth percentage is from start point (2015) to end point (2019), assuming it's stable for each year. No discussion whether 64% is "right" or "wrong". Assuming the revenue was corrected accounted for, then 64% CAGR is a mathematical outcome. Example of the second instance: another company is showing its 3 to 5 year projections for revenue, profit and free cash flow. They aim for 5% revenue growth per year, and use "expected revenue CAGR" to indicate that this is a year-on-year effect. The big question is whether as an investor you believe that the ideas that the company lists for revenue growth (international expansion, new product introduction, etc.) will translate to that 5% revenue growth. If you are pessimistic, you might believe that they will only be able to achieve 2% growth. If you are optimistic, you might believe they could get to 10% growth.
if anyone would not mind helping me out with this. if earnings-per-share were 1.25 and the expected five-year growth rate was 20%. I understand that the equation would be 1.25×1.20 raised to the fifth power. if I wanted to make 12% on that investment would I not take the answer from my equation and divided by one. 12 raised to the fifth power?
Hello! Let's go through this step-by-step. Your assumption on EPS is 20% growth per year, which means it is expected to go from $1.25 now (year 0) to $1.50 (year 1) to $1.80 then to $2.16 to $2.59 to $3.11 (year 5). If you want to make a return on investing in a share, you need to gather data on the current share price as well as make assumptions about its future share price. If the stock is currently trading at a price-earnings multiple of 10, which means share price is $12.50 compared to EPS of $1.25 (see P/E video ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-vQZAnxqYIlo.html ), and you assume the price-earnings multiple in the future stays exactly the same (i.e. 10) and the company pays no dividend, then you expect the share price to go (in line with CAGR growth of EPS) to $15, then to $18 to $21.60 to $25.92 to $31.10 (year 5). Your return (in terms of stock price appreciation) would be 20% per year, in line with the EPS growth. Please note there are a lot of "ifs" in the above calculations.
Hello Shankar! Correct, I don't do "direct" practice videos, however in the case of CAGR you can watch my tutorial "How to calculate sales growth in Excel" ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-G_BxZ0Bb1Mc.html and pause the video just before I put in the formula, then figure out what number you come up with by yourself, and resume the video when you want to check your answer. This video has a section on CAGR which starts at ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-G_BxZ0Bb1Mc.html Hope this helps!
