Term · Profitability & Growth
CAGR
In briefCAGR describes the average annual growth over several periods, as if it had compounded evenly. For small caps it smooths volatile growth over years and makes comparison with peers more realistic.
Definition
CAGR refers to the compound annual growth rate over several periods, assuming steady compounding.
How it is calculated
Formula. CAGR = (ending value / beginning value)^(1 / number of years) – 1.
Why it matters for small caps
For small caps, CAGR helps to smooth volatile growth over several years and to compare more realistically with peers.
Common misreadings
- CAGR is often read as actual annual growth, even though individual years can deviate sharply.
In the process
Frequently asked
What is CAGR?
It is the smoothed annual growth rate between a beginning and an ending value. It assumes constant growth over the entire period.
How is CAGR calculated?
You relate the ending value to the beginning value, take the root corresponding to the number of years and subtract one. This yields the average annual rate.
What weakness does CAGR have?
It is often read as actual annual growth, even though individual years can deviate sharply. Outliers and fluctuations remain hidden.
Related terms
Sources
Primary
IFRS Foundation – IFRS Accounting Standards Navigator
https://www.ifrs.org/issued-standards/list-of-standards/
https://www.ifrs.org/issued-standards/list-of-standards/
Methodology
ESMA – Guidelines on Alternative Performance Measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.