What is the Difference between Annualised Returns and CAGR?

Dear Friend!

Annualised return means an extrapolated or extended returns for the whole year based on the available data, which is normally monthly or quarterly or half yearly periods. For example, NMDC Ltd., declared its quarterly results for the quarter ended 30th June 2015, where the EPS for the quarter was Rs.2.55 per share. At that point in time we do not know what the EPS of other quarters would likely be. Suppose at that point in time we wanted to estimate what the EPS for the whole year could be, we multiply the first quarter EPS of Rs.2.55 by four and arrive at Rs.10.20, which is an annualised EPS, as depicted in the ensuing table:

Annualised EPS

The term CAGR stands for ‘Compounded Annual Growth Rate’. CAGR measures the compounded growth percentage of any quantity over a number of years. Let us examine the turnover of NMDC Ltd., for five years, as follows:

NMDC Ltd. Net Sales and CAGR

Proof of CAGR is depicted in the ensuing table:

Proof of CAGR from NMDC Ltd.'s Sales

In conclusion, annualised means extended or extrapolated and CAGR means compounded annual growth rate expressed in percentage.

Please Note: This is almost a reproduction of the question I had answered on the website ‘Quora’, which I thought could be useful to the visitors to this blog site also.

What are Good Books for Analysis of Financial Statements?

Dear Mr.Abhishek Rout

I have not had the occasion to read a specific book on financial statement analysis. I will recommend two books in the context of investing, both of which are classics and master pieces.

1. Security Analysis: 
   

This is a book written by Benjamin Graham and David L Dodd. Graham is my Guru Warren Buffett’s Guru. It is a bulky book, but a classic that will take you a long way in life

2. The Intelligent Investor:

This is again by Benjamin Graham. This is the ‘Bhagavat Gita’ for investors.

Though both the books are not addressed directly about financial statement analysis, both cover the subject more than adequately.

Happy Reading!

Thank you,

With Best Regards,

Anand

Please Note: This is almost a reproduction of the question I had answered on the website ‘Quora’, which I thought could be useful to the visitors to this blog site also.