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Finance GlossaryCompounded Annual Growth Rate (CAGR)
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Compounded Annual Growth Rate (CAGR)

Definition of Compounded Annual Growth Rate (CAGR)

Compounded Annual Growth Rate shows how much returns on average an investment can generate over a year, given the data for a period of time (say 5+ years).

CAGR is an indicative measure of yearly returns growth that assumes the profits are reinvested. The formula to calculate Compound Annual Growth Rate is:

CAGR = [(Ending value/Beginning Value)^(1/N)]-1

Related Terms

Ask Size

The ask size is the number of units of a security that an investor is willing to sell at the ask or offer price.

Convertible Bonds

A convertible bond is a hybrid security that’s initially designed to be a debt instrument that pays a fixed interest rate in exchange for a loan. Once the loan’s tenure ends, the holder can decide to take one of either action:

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    High Beta stocks are shares that outperform the market in terms of returns but carry high risk. Such shares are called “High Beta” because of their significantly high Beta Coeffient value, which measures the correlation of a stock and the market. A Beta value on the high side typically indicates more volatility and the potential for higher returns.

    Follow On Public Offer

    A Follow On Public Offer or FPO allows a publicly traded company to issue more stock to public investors. FPOs are similar to IPOs because FPOs allow companies to raise additional capital through the public market.

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    Long Strangle

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    EBITDA

    EBITDA is short for Earnings Before Interest, Taxes, Depreciation, and Amortization. EBITDA allows investors to understand cash flow from all operations while excluding certain non-cash expenses related to interest, depreciation, amortization, and taxes.

    That’s why investors use EBITDA as a valuation technique to determine the profitability of a company. Interestingly, EBITDA is a variation of operating income which is known as EBIT.

    While there are many ways to calculate EBITDA, the most common methods include:

    1) EBITDA = Net Income + Taxes + Interest + Depreciation + Amortization 2) EBITDA = Operating Income + Depreciation & Amortization



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