CAGR is compound annual growth rate and it is used to calculate what your principal would grow to if your interest earned is invested back at the same rate. So if you invest 100 bucks at 10% at the end of first year you would get 10 bucks as interest but at the end of the second year you would earn interest on 100 (original investment) + 10 (interest earned at the end of first year) = 110 and your interest would be 11 instead of 10.
CAGR is widely used in business to calculate the growth rate of revenues and profits as the assumption in business is that the money that is made is reinvested for future growth (the part which is not given as dividends to shareholders)
CAGR is a helpful tool when you are looking at a particular stock to buy and have its historic revenues and profits available. You can input the revenues at a year 2003 and then at the year 2008, enter the number of years as 5 and see what the CAGR comes out to be.
This will give you an idea of the rate at which the company has grown.
CAGR is also helpful to calculate the amount of money that you would have after a certain period of time if you were to invest a certain sum now at a given rate of interest. So in the above example 100 bucks will become 121 in two years time at a CAGR of 10%.
In this calculator you could calculate both, if you know what is the principal you are going to invest, number of years and rate of interest you could calculate the amount it would result in after the period.
Or if you knew the number of years, initial principal and then the resultant amount you could key in that to see at what CAGR the growth took place.
