Compound Annual Growth Rate (CAGR)

A new addition to ShareInvestor’s feature offerings, CAGR measures the annually compounded rate of growth of an investment over a specified time period, assuming a steady rate of positive or negative growth over the period by reducing the volatility effect of sporadic returns thus smoothing out uneven returns from year to year.

Simply put, if an investment were to yield a 10% annual compounded return over a five-year period, it means the investment had grown 10% per year over each of the five years at an even pace to arrive at the End Value although the actual rate of growth may not be 10% each year over that five-year period.

Computed as follows,

CAGR computations will not yield any meaningful results in instances where the Initial Value at the beginning of the time period or End Value at the end of the time period is negative or zero.

Often used to evaluate a company’s performance against its historical performance or that of other companies from identical time periods, CAGR gives a better view on the company’s performance over the longer term as it not only takes into consideration the effects of compounding but also evens out the ups and downs of both the business and market cycles from year to year.

Nevertheless, investors looking for consistent growth and performance should seek to further examine a company’s annual performance figures to ensure that the rosy CAGR is not merely boosted by one-off exceptional events considering that CAGR does not reveal the volatility of the growth, that is, large positive gains in some years and large negative gains in others, from one year to another since only the Initial Value at the beginning of the time period and End Value at the end of the time period are used in the computation.

Moreover, the resulting CAGR is highly contingent on the selection of base year and the period under examination which in turn have a bearing on a company’s performance. A company’s recent performance or even future performance may not replicate those achieve attain when at the height of the bubble or in times of market downturn for instance. Hence, while being mindful of the time period on which CAGR is calculated when evaluating investment alternatives, investors ought to use the equivalent time periods and duration for CAGR computations of the respective investment alternatives.

Lastly, as with other indicators, CAGR, calculated on past data, is not indicative of expected future growth.

Where can I find CAGR at ShareInvestor?

There are numerous ways for you to access CAGR at www.ShareInvestor.com.

1. 3-Year and 5-Year CAGR for Revenue, Net Earnings, Earnings Per Share as well as Dividend Per Share of every stock are made available under the CAGR section of the Factsheet.

Source: ShareInvestor.com

Click on “View Complete Financials” to make reference to the company’s financials under the Historical Fundamental Data section of the Financials for its annual performance over the selected period.

Source: ShareInvestor.com

Performance figures for the Full Year Mar 2012 as highlighted above serve as the “End Value at Time Period: Nth” inputs for the computations of both the 3-Year and 5-Year Revenue, Net Earnings, Earnings Per Share and Dividends Per Share respectively.

Performance figures for the Full Year Mar 2009 as highlighted above serve as the “Initial Value at Time Period: 0” inputs for the computations of  the 3-Year Revenue, Net Earnings, Earnings Per Share and Dividends Per Share respectively while those highlighted for the Full Year Mar 2007 serve as the “Initial Value at Time Period: 0” inputs for the computations of  the 5-Year Revenue, Net Earnings, Earnings Per Share and Dividends Per Share respectively. “Number of Time Periods, N” for the former and latter would be 3 and 5 respectively.

Click on “Click to show Profit and Loss chart” for the graphical representations on the company’s performance over the years.

Source: ShareInvestor.com

Further down is a section on the Adjusted Fundamental Data – Financial Ratios. Here, the graphical representations on the year-on-year growths of the relevant performance ratios relative to other financial metrics are available for further analysis.

Source: ShareInvestor.com

3-Year and 5-Year CAGR on Revenue Vs. Year-On-Year Revenue Growth

The company, a luxury timepiece retailer and distributor in Asia, has achieved an accelerating CAGR on its Revenue in recent years (3-Year Revenue CAGR: +14.13% Versus 5-Year Revenue CAGR: +11.49%) largely in part contributed by growing sales from continuous expansion and penetration in high growth Southeast Asian markets which see rising affluence as well as a more diverse and exclusive sales mix of premium brands.

Upon closer examination, the company has registered its first marginal drop in Revenue (Full Year Mar 2009 Revenue Growth: -4.173%) over stellar performance in the previous year (Full Year Mar 2008 Revenue Growth: 20.914%), being the base year, after years of Revenue Growth. Sales, as reflected in the lower volume and lower value of transactions, were affected as a result of deterioration in consumer confidence and a consequent cutback in consumer spending brought about by the global financial crisis which reared its ugly head towards the second half of the calendar year 2008, leaving many economies and business sectors badly hit.

3-Year and 5-Year CAGR on Net Earnings and Earnings Per Share Vs. Year-On-Year Net Earnings Growth

In line with the accelerating CAGR on Revenue in recent years, the company also achieved an accelerating CAGR on Net Earnings (3-Year Net Earnings CAGR: +49.48% Versus 5-Year Net Earnings CAGR: +40.12%; 3-Year EPS CAGR: +49.90% Versus 5-Year EPS CAGR: +39.77%), suggesting improved profitability as well as effective costs and expenses management over time upon smoothing out the adverse effects of an exceptional inventory loss following theft at a local retail outlet on Full Year Mar 2009 results.

Had it not been for the isolated incident, the volatility of the year-on-year bottom-line growths for the Full Year Mar 2009 and 2010 (Full Year Mar 2009 Net Earnings Growth: n.a., Full Year Mar 2010 Net Earnings Growth: 93.764%) would be less pronounced.

3-Year and 5-Year CAGR on Dividend Per Share

In view of retaining funds for its expansionary plans as made evident in the growing Net Earnings but decreasing Dividend Payout Ratio in recent years, the company had trimmed the Gross Dividend Per Share from  SG1.2200 cents for the Full Year Mar 2007 to SG1.0000 cent for the Full Year Mar 2008 (5-Year Dividend Per Share CAGR: -3.90%) and since maintained a stable stream of constant regular dividend payments at SG1.0000 cent (3-Year Dividend Per Share CAGR: -).

Instead, to make up for the dividend cut as well as a signal to market participants the dividend cut is in light of cash conservation for expansion rather than poor financial health or bleak prospects of future earnings, the company would distribute any surplus cash in the form of one-off Special Dividend which does not constitute a permanent shift in the company’s regular Dividend Policy while holding the regular Gross Dividend Per Share constant. This is evident in the payment of Special Dividend Per Share of SG1.0000 cents in addition to the Gross Dividend Per Share of SG1.0000 cents paid for the Full Year Mar 2008, bringing total Dividends Per Share to SG2.0000 cents for the year which first saw a cut in the regular Gross Dividend Per Share of SG0.2200 cents. With the exception of Full Year Mar 2009 when the financial crisis strikes, Special Dividend Per Share had been increasing year after year.

2. “Beta/CAGR” table column layout under Prices and Portfolio.

Select “Beta/CAGR” table column layout view for the 3-Year and 5-Year CAGR on Revenue, Net Earnings, Earnings Per Share as well as Dividend Per Share of a list of stocks and compare them against other metrics using a variety of filters and selections.

Source: ShareInvestor.com

Source: ShareInvestor.com

3. Fundamental filters under Prices.

Find the stocks with the highest compunded annual growth rates for the respective performance metrics in the stock market with ease through the 6 additional selections under the Fundamental dropdown selection:
– Highest Revenue CAGR (3-Year)
– Highest Revenue CAGR (5-Year)
– Highest Earnings CAGR (3-Year)
– Highest Earnings CAGR (5-Year)
– Highest DPS CAGR (3-Year)
– Highest DPS CAGR (5-Year)

Source: ShareInvestor.com