When a business is producing a business plan seeking equity capital from an investor, it often expresses the return for the investor in terms of a multiple on the original investment, and the planned exit year. These two factors equate to a compound annual growth rate (CAGR) for the investor which they will use as one factor in deciding whether or not to invest in the business.
This CAGR calculator allows a business to input the multiple and the exit year and calculate the corresponding return the investor can make.
For example, if the investor invests 10,000 and exits in year 5 with 40,000, then the multiple is 40,000 / 10,000 = 4 and the CAGR calculator shows that this is equivalent to a compound annual growth rate of 32%. This is equivalent to saying that if an investor invests 10,000 at the beginning of year 1 and earns 32% per year for 5 years, at the end of 5 years he will receive 40,000.
This information is useful when producing a business plan using the financial projections template as it allows the business to see whether it satisfies the investors return on investment requirements.
Using the CAGR Calculator
The Excel CAGR calculator, available for download below, calculates the CAGR for up to five different scenarios by entering details relating to the multiple required and the exit year, and is used as follows:
- The multiple is entered. For each scenario, enter details of the multiple required by the investor or the multiple shown by the financial projections. So for example, if 5,000 invested in year one returns 25,000 in year 6, then the multiple is 25,000 / 5,000 = 5.00
- The exit year is entered. Enter the proposed exit year for each of the five scenarios. In the above example, the exit year would be 6.
- The CAGR is calculated. For each of the five scenarios, the CAGR calculator calculates the compound annual growth rate based on the multiple and exit year.
CAGR Calculator Download
The CAGR spreadsheet is available for download in Excel format by following the link below.
Users use this CAGR calculator at their own risk. We make no warranty or representation as to its accuracy and we are covered by the terms of our legal disclaimer, which you are deemed to have read. This is an example of an compound rate of return calculator that you might use. It is purely illustrative. This is not intended to reflect general standards or targets for any particular company or sector. If you do spot a mistake in compound annual growth calculator, please let us know and we will try to fix it.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.