Calculating CAGR in Python & JavaScript

The Compound Annual Growth Rate (CAGR) is a useful measure for assessing the mean annual growth rate of an investment or business metric over a specified period longer than one year. Unlike other growth metrics, CAGR smooths out the volatility, providing a clearer picture of how investments grow over time.

In this guide, I’ll show you exactly how I calculate CAGR with code examples in Python and JavaScript.

How Is CAGR Calculated?

To calculate CAGR, you need three key pieces of information:

• The initial value
• The closing value
• The number of years

The formula is (end_value / begin_value) ** (1 / years) - 1

Let’s break it down with an example. Suppose you invested $1,000, and after 5 years, your investment grew to $1,200.

Using the formula, we get: CAGR = (1200 / 1000) ** (1 / 5) - 1 = 0.03713728933 or 3.71%

Python CAGR Function

Calculating CAGR in Python is straightforward. Here’s the function I use:

def calculate_cagr(begin_value, end_value, years):
    return (end_value / begin_value) ** (1 / years) - 1

begin_value = 1000
end_value = 1500
years = 5

cagr = calculate_cagr(begin_value, end_value, years)
print(f"The CAGR is {cagr:.2%}")

Javascript CAGR Function

For those who prefer JavaScript, here’s how you can calculate CAGR:

const calculateCagr = (beginValue, endValue, years) => {
    return Math.pow(endValue / beginValue, 1 / years) - 1;
}

let beginValue = 1000;
let endValue = 1500;
let years = 5;

let cagr = calculateCagr(beginValue, endValue, years);
console.log("The CAGR is " + (cagr * 100).toFixed(2) + "%");

This JavaScript function uses the Math.pow to handle the exponentiation.

CAGR smooths out the volatility by averaging the annual growth rate over the investment period, thereby providing a consistent rate of return as if the investment had grown at a steady pace each year.

These simple functions can help measure and compare the growth rates of your investments over time. I hope this is useful for your analysis tools and scripts.

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