Whether you’re running a company or thinking of investing in one, one of the ways you can determine its success and value is to measure its compound annual growth rate (CAGR). This metric is used by investment and asset management companies, investors, and financial professionals to understand an asset’s performance.
Traditionally, CAGR is calculated with Excel spreadsheets. Users can plug data into predefined formulas and report on their findings to their clients or stakeholders. There are also online calculators made for the same purpose. Today, there’s another option — using AI to calculate CAGR.
Here’s a quick overview of CAGR and how to measure it using three different methods: AI, Excel, and CAGR calculators.
What Is CAGR?
Compound annual growth rate or CAGR is a widely used metric in finance and investing that represents the annual growth rate over a specified period of time. Unlike simple annual growth rate calculations, CAGR takes into account the impact of compounding by assuming that profits are reinvested during this period of time. This offers a more accurate measure of investment growth.
Finance professionals, investors, and businesses rely on this metric because it provides a single, easily understandable number for assessing the steady growth or decline of an investment, business, or market segment.
CAGR can be calculated using this formula:
CAGR = ((Ending Value/Beginning Value) ^ (1/Number of Years) – 1) x 100
To use this formula:
- Divide the value of an asset at the end of a period by the beginning value of the asset.
- Raise this value to an exponent of one divided by the number of years.
- Subtract one from this result.
- Multiple by 100 to receive the result in the form of a percentage.
How to Calculate CAGR Using Instabase
One of the fastest ways to calculate CAGR is to use Instabase’s AI Hub and the Converse app.
About AI Hub and Converse
Instabase AI Hub offers a user-friendly, no-code suite of tools that puts the power of AI in your hands with no experience required. It’s designed to help you quickly unlock the power of unstructured data — data that isn’t stored in a standard format, such as handwritten notes, variable documents, and images with text.
Converse is an app within the AI Hub that lets you interact with your documents through conversation. Ask Converse to extract the information you specify, organize data into different formats, and even perform calculations on your data.
Instabase is used by some of the world’s largest financial services companies to process their financial data. Our customers include NatWest, Standard Chartered, and Paychex — all of whom trust Instabase to deliver the insights they need.
Users can upload financial data in a variety of formats, including PDFs, Word, Excel, and images. Converse uses generative AI to understand your documents, including text within images and handwritten text. It’s intuitive, easy to use, and requires no coding to implement.
Unlike other AI solutions, Converse is able to perform calculations and identify the steps it took to create those calculations. It can identify the formula, find the relevant numbers, plug them into the formula, and perform the calculation with accuracy. Plus, it shows the steps it takes to arrive at the answer, so you can easily check its accuracy. Converse is highly accurate and auditable, which makes it a practical solution for financial institutions that perform large volumes of complex calculations.
Using Converse to Calculate CAGR
Let’s look at how you can use Converse to calculate the CAGR using data in an Excel table. In this example, we’ll upload a PNG screenshot of an Excel table.
- Access the AI Hub by going to aihub.instabase.com, then open the Converse app.
- Click the “Add files” button in the bottom-left corner to upload your files.
- Upload your files.
- Click the star icon in the conversation box and select the multistep model.
- Ask Converse to calculate the CAGR using your data.
- Click “Show steps” to see how Converse generated its response.
While you can quickly do one-off calculations this way, it’s much more powerful to build an end-to-end automated workflow around it. Instabase provides the infrastructure for this. You can easily embed Instabase into your workflow through APIs, allowing you to automatically push data into Instabase, perform calculations, and send the new data to a spreadsheet, document, database, or other tool of your choice.
Why Use AI to Calculate CAGR?
Compared to other solutions, like Excel and CAGR calculators, AI is the most efficient and accurate solution. It doesn’t require manual data entry, reducing the potential for human error. It’s also the only one that can be automated and built into your existing workflows.
Let’s compare these three options for calculating CAGR.
AI tools like Instabase do most of the heavy lifting for users. With the formula pre-defined, AI automatically pulls the right data into the formula to perform the calculation. You can also look at the process step by step to verify the correct data is being used, adding an extra layer of transparency for your clients or stakeholders.
- Accurate, as it directly pulls the data from your files
- No manual data entry, reducing the potential for human error
- Transparent, as some AI solutions can show where it found the data used and the steps it took
- Can be automated
- Security concerns, since you have to provide access to your data
- May require developer resources to integrate AI and automation into your existing workflows
Excel has long been the go-to for financial organizations and departments to calculate CAGR. Excel is built to perform calculations and comes with a wealth of built-in tools to simplify how you manipulate your data. However, Excel is reliant on human data entry, which can be prone to error. There’s also the potential for data to be erroneously or unknowingly changed, especially when you have multiple people working on the same document and constantly saving new versions of it.
- Transparency, since you can see the formula used
- Universally used, which ensures that anyone can dig into the data
- Easily shareable, since most people have access to Excel
- Requires manual data entry, which can lead to costly errors
- Prone to human error due to inaccuracies in the formula, wrong numbers being entered, or the wrong cells being referenced (among other possibilities)
- Limited automation on its own, but some third-party systems may offer integrations since Excel is a common application
- Spreadsheets can become large and unwieldy, leading to a slowdown in productivity
A purpose-built CAGR calculator is a tool designed to simplify CAGR calculations. Simply input your data in the corresponding fields and the calculator will do the math for you. Although CAGR calculators are free to use and there are many that can be found by searching online, some of the same downsides of Excel apply to them.
- Accurate, since the formula is already established
- Easy to use — just plug in your data
- Requires manual data entry, which could lead to inaccurate calculations
- Can’t be automated because the calculators don’t integrate with other systems or tools
Comparing these three options, AI provides the simplest and most reliable solution because of its high level of accuracy, integrations with third-party systems, and ability to show its work so that you have an audit trail and can feel confident about the output.
Choosing Instabase AI Hub to Calculate CAGR
Today’s financial experts and businesses have a better option to calculate CAGR — the power of AI. Artificial intelligence is the next step in automating financial calculations and reporting. By leveraging AI for resource-intensive tasks, companies can free up their employees to focus on the customer experience or growth initiatives.
Instabase makes it easy to start bringing AI and automation into your financial workflows with its no-code apps. Use Instabase AI Hub to calculate CAGR and experience a simpler way to do complex calculations.