CAGR explained

[@TheFinanceStoryteller]

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 kzbin.info/www/bejne/rGqzgZyLodCAe9U

[@crixanjel4]

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]

So happy to hear that, Daniel! I think CAGR is a great concept, if you know how to use it and what its limitations are. ;-)

[@asdasd-lq2hd]

@@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?

[@TheFinanceStoryteller]

@@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.

[@EXcellentstuFF]

Agreed, this video explains very clearly.

[@micky141]

I love how you explain the math behind it. It’s so much easier to remember the formula once you understand it. Great job 👏

[@TheFinanceStoryteller]

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. 😂

[@buddybestor]

You're a great teacher and can make something complicated sound simple...thats a gift!

[@TheFinanceStoryteller]

Thank you for the kind words! That is such a big compliment. I thank you!!!

[@vatsaldwivedi7721]

This is possibly the best video on youtube to understand CAGR. Others are just beating around the bush.

[@TheFinanceStoryteller]

Thank you for the kind words! That was exactly the reason for making the video. :-)

[@vatsaldwivedi7721]

The Finance Storyteller can you please make a video to explain the concept of real effective exchange rate?

[@TheFinanceStoryteller]

@@vatsaldwivedi7721 I have not heard of that concept before, but can investigate.

[@vatsaldwivedi7721]

The Finance Storyteller thank you! 😊😊

[@10gokhrustali]

This is the best out of all the videos I have seen on youtube concerning CAGR. THANK YOU

[@TheFinanceStoryteller]

Thank you for the kind words, Tengiz! Glad you enjoyed it. Please spread the word! :-)

[@michaeldevito258]

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!

[@TheFinanceStoryteller]

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: kzbin.info/www/bejne/o4ulm6Z_jtd_rK8 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.

[@nardosteshome7520]

Short, crisp and simple to understand!!! Especially for Non - finance managers like me :)

[@TheFinanceStoryteller]

Thank you, Nardos! That's exactly what I aim for. :-) Great to hear that feedback.

[@lucaswilliam719]

This video may have just made me a lot of money. I’ll check back with this in 5 years

[@TheFinanceStoryteller]

The power of compounding!!! 🙂

[@xuanxu6847]

I can't say how much I appreciate your explanation. This is so helpful!!!!!

[@TheFinanceStoryteller]

I'm so glad! Thank you for watching and commenting.

[@mrmatchpoint]

Very few people explained it in way you did! Thanks a tonnes - CLEAR!

[@TheFinanceStoryteller]

Glad it was helpful, Adwait! Happy to hear that.

[@bhavnarajput8572]

Wonderfully explained... I really have no words to express my gratitude for the help I got from this video ...

[@TheFinanceStoryteller]

Thank you! So happy to hear that! :-) Please spread the word, tell your friends and colleagues. ;-)

[@georgestreng]

Now that made perfect sense. Thank you. I look forward to watching your other videos.

[@TheFinanceStoryteller]

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: kzbin.info/www/bejne/fZClqY1md8dkg8U

[@johnolorunfemi3557]

Love your page. Feeling like a finance expert already

[@TheFinanceStoryteller]

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: kzbin.info/www/bejne/hnqciWiPl8qelac&pp=gAQB

[@guneetchadha6838]

Excellent video !! It's great you showed the derivation (more useful) instead of just going to the formula.

[@TheFinanceStoryteller]

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. ;-)

[@yinyin7614]

Very practical. Like your teaching, I always can apply in the real world.

[@TheFinanceStoryteller]

Thank you very much! That is exactly what I was hoping to achieve. 😎

[@joshortiz5445]

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!

[@TheFinanceStoryteller]

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.

[@standman007]

This was a perfect explanation on CAGR with a nice example. Thanks very much

[@TheFinanceStoryteller]

You're welcome! Thank you for watching and commenting.

[@Jemie72]

Very nice it was and informative. Thank you

[@TheFinanceStoryteller]

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 kzbin.info/www/bejne/fZClqY1md8dkg8U

[@AlvaroLecubarri]

Very meaningful and well explained. Bravo!

[@TheFinanceStoryteller]

Glad you liked it! Please spread the word to friends and colleagues.

[@zoidxenaful]

excellent video and very good and simple explanation on CAGR..thanks so much for this!!!

[@TheFinanceStoryteller]

Thanks for the kind words! Glad you enjoyed it. :-)

[@hcp0scratch]

"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!

[@TheFinanceStoryteller]

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.

[@daafneem]

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!

[@TheFinanceStoryteller]

Gracias Dafne! Happy to help. 😊 Finnish Fazer Chocolate sounds great, let's make it happen. 😎

[@emaxv1979]

Thanks so much for such a clear, simple and concise explanation!

[@TheFinanceStoryteller]

Thank you for commenting! Nice to hear that. :-)

[@inv8890]

This is the best video I've seen on CAGR, loved it buddy keep up the good work !

[@TheFinanceStoryteller]

Wonderful to hear that! Thank you for watching and commenting.

[@vma1234]

clear, simple and concise explanation. Thanks!

[@TheFinanceStoryteller]

Glad it was helpful! Please subscribe, and spread the word! :-)

[@vma1234]

@@TheFinanceStoryteller I am a subscriber

[@TheFinanceStoryteller]

Thank you!!!

[@jcantonelli1]

Very well explained - thanks!

[@TheFinanceStoryteller]

Glad it was helpful, Joe! Enjoy using CAGR.

[@brucebutler149]

awesome simple and clear video

[@TheFinanceStoryteller]

Thank you, Bruce! :-)

[@k.rajmani1411]

wonderfully Explained Sir..

[@TheFinanceStoryteller]

Thank you! :-)

[@chitsuwai8975]

really effective to understand easily for the one who wasn't familiar with finance

[@TheFinanceStoryteller]

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. :-)

[@gp2296]

Thank you so much for making these videos, you nailed the explanation!

[@TheFinanceStoryteller]

Great to hear that! :-) Please subscribe to the channel, and spread the word to friends and colleagues!

[@David-tg8ku]

Very good clear explanation

[@TheFinanceStoryteller]

Nice to hear that! Thank you!!!

[@lakshmanprasadsharma]

Loved the inclusion of creating formulas in excel

[@TheFinanceStoryteller]

Great to hear, Joshua! Yeah, that's where most people ultimately use the concept.

[@Chris-jg7un]

Very helpful! Nice way of explaining with the visuals, thank you sir.

[@TheFinanceStoryteller]

You're welcome, Chris! Thanks for the kind words.

[@Eternalised]

excellent explanation, thank you

[@TheFinanceStoryteller]

Nice to hear that! Thank you for watching and commenting.

[@urameshix]

Thank you for the explanation! Very simple & concise! :)

[@TheFinanceStoryteller]

Great to hear that, José! :-) Thank you for watching and commenting.

[@ramansharma8585]

Beautiful , simple , easy , subscribed , ringed the bell.............................!!!

[@TheFinanceStoryteller]

Great!!!! Thank you. Please spread the word. :-)

[@haibinhnguyen4351]

It is easy to understand, thank you very much!

[@TheFinanceStoryteller]

I am very happy to hear that! Enjoy using it.

[@unknownuser-sr2zh]

very practical explanation.. thanks✌

[@TheFinanceStoryteller]

Happy to help! 🙂

[@vanessaluu1047]

Great video! Very helpful. I love the drawings.

[@TheFinanceStoryteller]

Thank you, Vanessa! That's wonderful to hear.

[@matiassummer353]

great explanation, good job

[@TheFinanceStoryteller]

Happy to help, Matias! Enjoy using it.

[@lunyteve]

Very good explanation

[@TheFinanceStoryteller]

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: kzbin.info/www/bejne/fZClqY1md8dkg8U

[@koreankkkpop5245]

Thanks very much. So easy to understand now.

[@TheFinanceStoryteller]

You're welcome! Happy to help.

[@srenyvas1]

VERY GOOD EXPLANATION

[@TheFinanceStoryteller]

Thank you! :-)

[@sungkuan6982]

Good job man! Clear and concise!

[@TheFinanceStoryteller]

Thank you! Glad you enjoyed it.

[@maryamnaghavi9380]

Incredibly helpful

[@TheFinanceStoryteller]

Glad to hear, Maryam! 😊

[@george9710]

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.

[@TheFinanceStoryteller]

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.

[@iselieiglesias1]

Easy to understand! Thanks!

[@TheFinanceStoryteller]

Nice to hear that! Thank you!

[@blazkurnik5172]

Very clearly explained

[@TheFinanceStoryteller]

Thank you, Blaz!!!

[@MrKen881]

Excellent explanation! Thanks for making this video :)

[@TheFinanceStoryteller]

Glad you enjoyed it! 🙂 Thank you for watching and commenting.

[@AravathOkkal]

best possible explanation. thank you sir

[@TheFinanceStoryteller]

You're welcome! Thank you for watching and commenting.

[@susanbandy4576]

Very well done! Thank you!

[@TheFinanceStoryteller]

Glad you liked it, Susan! 😎

[@ashwanisingh8267]

Wish you were my tutor the whole study journey...Thanks a lot.

[@TheFinanceStoryteller]

Hello Ashwani! Happy to help. Hopefully there are multiple videos on my channel that you can benefit from.

[@ashwanisingh8267]

@@TheFinanceStoryteller Yea..i checked few relevant ones...shared the link too to my frnds...Thanks

[@TheFinanceStoryteller]

@@ashwanisingh8267 Wonderful! Yes, please spread the word. I have organized related videos into playlists, that might help you navigate through the content as well.

[@NamanSaklecha]

really well explained. Thank you !

[@TheFinanceStoryteller]

You're welcome, Naman! Happy to help!

[@Catastrophic_Chipmunk]

Very Well Explained. Thanks Man!

[@TheFinanceStoryteller]

You're welcome! Thanks for watching.

[@FarhanHanavi]

Bravo, thankyou for your explanation !

[@TheFinanceStoryteller]

Glad it was helpful! 😎

[@maryquintieri223]

very good video on CAGR.

[@TheFinanceStoryteller]

Thanks for watching! :-)

[@cabdiwaaxidahmedguuleed9767]

Thanks really it is tested good and unforgettable.

[@TheFinanceStoryteller]

Thank you so much!!! :-)

[@tiagodeabreu1173]

Awesome. Thanks for that.

[@TheFinanceStoryteller]

My pleasure, Tiago!

[@ethanluc8908]

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%+?).

[@TheFinanceStoryteller]

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 KZbin channel, when I check views, watchtime and subscribers. Trying to always get at least 10% growth versus the previous month.

[@lumpygravy38]

Clear and concise.

[@TheFinanceStoryteller]

Thank you! Happy to hear that.

[@Zangar-ft2fc]

thank you habibi from Zangar, Sikandar, and Azam

[@TheFinanceStoryteller]

Happy to help!

[@voltzfgc9114]

Great Video!

[@TheFinanceStoryteller]

Thank you! Nice to hear that!

[@SukhbirCheema]

Thank you so much for this! Subscribed.

[@TheFinanceStoryteller]

Awesome, thank you!

[@anmolverma6192]

Amazing explanation man. Thank you for putting in the effort :) Keep it up !

[@TheFinanceStoryteller]

You're welcome! Thank you for the support. Please spread the word to friends and colleagues. :-)

[@anmolverma6192]

@@TheFinanceStoryteller Absolutely !

[@TheFinanceStoryteller]

Thank you, Anmol!

[@pascalebouffard9477]

Thank you. Very clear

[@TheFinanceStoryteller]

Merci, Pascale! :-)

[@Sattrecamuss]

Thanks. Really useful.

[@TheFinanceStoryteller]

Glad to hear that! 😊

[@shankargupta5893]

Future value is always of a lot of significance

[@TheFinanceStoryteller]

Agree!

[@yosmuc]

Great content as always. Thank you :)

[@TheFinanceStoryteller]

Glad you liked it! Thank you for watching. Please spread the word. ;-)

[@paulsmith3476]

The Finance Storyteller Could you do a couple videos , one on ROIC and ROIIC?

[@TheFinanceStoryteller]

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): kzbin.info/www/bejne/mJnFdXeJpM19bpY

[@loungester]

All this talk about feelings @ 4:12 got me a little emotional now..

[@TheFinanceStoryteller]

Bet you hadn't expected the word "feelings" in a CAGR video! ;-)

[@KarimMirhady]

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.

[@TheFinanceStoryteller]

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.

[@gummex4192]

Love this thanks

[@TheFinanceStoryteller]

You are so welcome! :-)

[@Leandrasjones]

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.

[@TheFinanceStoryteller]

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.

[@utpalbhatt7672]

excellent

[@TheFinanceStoryteller]

Thanks! 🙂

[@Jackie3771]

What if I reinvest my dividend. Will it change the final value?

[@TheFinanceStoryteller]

Reinvesting your dividends will accelerate your returns. See my video "How to calculate stock returns" kzbin.info/www/bejne/iordeHqFoJJroac

[@nicolassuarezblog]

realmente fantastico, asi es un placer aprender, muy bien explicado, gracias :-D

[@TheFinanceStoryteller]

De nada! :-)

[@hhifnawi]

THANKS!

[@TheFinanceStoryteller]

You're welcome!

[@pntshiba]

so good

[@TheFinanceStoryteller]

Thank you! 😊

[@marcolorenzovalerianodelro1753]

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?

[@TheFinanceStoryteller]

There is no definitive answer to that, but I would personally go with the CAGR.

[@samuelong3804]

thank you

[@TheFinanceStoryteller]

You're welcome, Samuel! Happy to help.

[@udayraj5386]

Beautiful...

[@TheFinanceStoryteller]

Thank you, Uday! :-)

[@oscarpalmquist3216]

Very good, however i didn't see the final result on your example. Is it 20%

[@TheFinanceStoryteller]

Hello Oscar! Correct, 20%.

[@buildmygifts6216]

thx for your help

[@TheFinanceStoryteller]

You're welcome! :-)

[@mattray6425]

In the Power Function, you still need to subtract 1 from the function result. Otherwise the CAGR = 120%?

[@TheFinanceStoryteller]

Agree! Even though I might not have mentioned it explicitly in the audio track, I was showing the correct formula on the screen POWER(G2/B2;1/5)-1

[@praveenkumarm5549]

Say about financial hypothesis and analysis

[@hcp0scratch]

A+++ TY!

[@TheFinanceStoryteller]

You're welcome! Happy to help.

[@louiarale3986]

Is it ok if cagr 5 years result minus ?

[@TheFinanceStoryteller]

If the end point is lower than the start point, you will have a negative CAGR.

[@louiarale3986]

@@TheFinanceStoryteller ouw, ok thanks

[@TheFinanceStoryteller]

You're welcome! Please subscribe to the channel!

[@waseemullahkhan]

Correction: in method 2 using POWER use this =POWER(H9/C9,1/5)-1 and NOT =POWER(H9/C9;1/5)-1 Thank you

[@TheFinanceStoryteller]

Hello Waseem! That depends on the regional settings that you use. For some people it will be the comma, for others the semicolon.

[@waseemullahkhan]

@@TheFinanceStoryteller Oh really! regional settings can do that? I didn't know that, thank you for the info. Cheers!

[@TheFinanceStoryteller]

Does your company use the term CAGR in its presentations or business updates? If so, how frequently? Let me know by commenting below!

[@greymane2090]

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?

[@TheFinanceStoryteller]

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 kzbin.info/www/bejne/rIK9cqGupr58otE ), 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.

[@shankargupta5893]

I wish u had practice videos but I think if I couldn't practice I'm likely to forget a lot

[@TheFinanceStoryteller]

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" kzbin.info/www/bejne/fZClqY1md8dkg8U 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 kzbin.info/www/bejne/fZClqY1md8dkg8U Hope this helps!

[@OfficialAnarchyz]

You like saying CAGR, don't you, CAGR?

[@TheFinanceStoryteller]

I do indeed!

[@AufBerghofNAM]

Lol all Dutch people sound the sames

[@TheFinanceStoryteller]

Yep, we certainly do, but it doesn't stop us! :-)