How do you calculate annual rate of return over multiple years in Excel?

When you download monthly return data from Morningstar, it places the data in column B starting in row 6, so I will use B6:B225 as the monthly return data in my examples.

Table of Contents Show

Option 1: Future Value
Option 2: Array
Option 3: Large Table
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Note that Morningstar gives you the data as whole numbers, meaning 5.42039 instead of 0.0542039, which before you can use the data you must divide by 100.

There are at least three options.

Option 1: Future Value

The main formula for an annualized rate of return is: The quotient of the ending value divided by beginning value raised to the exponent of the quotient of one divided by the number of years minus one.

The Excel function FVSCHEDULE calculates the future value of its first input when grown according to the array in its second input. In this way, you can use FVSCHEDULE(1,B6:B225) to calculate the ending value of a $1 investment.

The next step in the formula for annualized return is the ending value of the investment divided by the beginning value of the investment. Since we used a beginning investment value of $1, we have already completed that step.

The next step is to raise this ratio to the exponent of 1 divided by the number of years and then subtract 1.

Because we have a number of months in COUNT(B6:B225), to make this the number of years we would use 12/COUNT(B6:B225)

This makes the final formula for returns expressed as decimals:

=FVSCHEDULE(1,B6:B225)^(MIN(1,12/COUNT(B6:B225)))-1

If your numbers are expressed as whole numbers, you will need to divided the return numbers by 100 to get the right answer. To do this, you will Array Enter (Ctrl-Shift-Enter) the following formula, which includes the step of dividing by 100:

{=FVSCHEDULE(1,B6:B225/100)^(MIN(1,12/COUNT(B6:B225)))-1}

Option 2: Array

Another way to annualize a return is to use the product of, for each month in turn, one plus the month’s return. This can be achieved with the array-entered formula:

{=PRODUCT(1+B6:B225/100)^(12/COUNT(B6:B225))-1}

This formula assumes you need to divide by 100 to get your returns into decimals. If you do not, you can use:

{=PRODUCT(1+B6:B225)^(12/COUNT(B6:B225))-1}

Option 3: Large Table

Sometimes, you may find that you are already in need of creating a table where you grow the assets by the monthly amounts. If that is the case, set up the table with a starting value and then multiply the cell above by that month’s monthly return divided by 100. For example, the first cell might be:

=C5*(1+B6/100)

where C5 has a starting value of say $10,000.

Then after growing all the returns all the way down to growing C224 by B225 into a C225, you can calculate the annualized return by using ending value divided by beginning value, like so:

=(C225/$C$5)^(12/COUNT($C$5:C225))-1

This has the added benefit that you can count the annualized return over time, easily calculate a rolling return, or create a “Growth of the Assets Over Time” graph without any additional effort.

However, it uses a lot of cells to accomplish something you could have done in one cell with one of the options above.

Hopefully, these three strategies empower you to run some of your own investment analysis. If you enjoy running investment analysis in Microsoft Excel, you may want to consider applying for a job at Marotta Wealth Management!

We are an independent, fee-only, comprehensive wealth management firm offering a complete range of investment management and financial planning services. The work we do for clients is valuable, fun, and fulfilling. As fee-only fiduciaries, our only concern is to help clients meet their goals. And as comprehensive wealth managers, we are always seeking to advance the financial planning profession.

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We have no secret ingredient at Marotta Wealth Management. Instead, we openly and publicly publish our strategies as articles on our website.

This article is talking about ways to calculate the Average Annual Growth Rate (AAGR) and Compound Annual Growth Rate (CAGR) in Excel.

Calculate compound annual growth rate in Excel
Calculate compound annual growth rate with XIRR function in Excel
Calculate Average annual growth rate in Excel

Calculate Compound Annual Growth Rate in Excel

To calculate the Compound Annual Growth Rate in Excel, there is a basic formula =((End Value/Start Value)^(1/Periods) -1. And we can easily apply this formula as following:

1. Select a blank cell, for example Cell E3, enter the below formula into it, and press the Enter key. See screenshot:

=(C12/C3)^(1/(10-1))-1

Note: In the above formula, C12 is the cell with end value, C3 is the cell with start value, 10-1 is the period between start value and end value, and you can change them based on your needs.

2. In some cases, the calculation result may not format as percentage. Please keep selecting the calculation result, click the Percent Style button

on the Home tab to change the number to percentage format, and then change its decimal places with clicking the Increase Decimal button

or Decrease Decimal button

. See screen shot:

Calculate compound annual growth rate with XIRR function in Excel

Actually, the XIRR function can help us calculate the Compound Annual Growth Rate in Excel easily, but it requires you to create a new table with the start value and end value.

1. Create a new table with the start value and end value as the following first screen shot shown:

Note: In Cell F3 enter =C3, in Cell G3 enter =B3, in Cell F4 enter =-C12, and in Cell G4 enter =B12, or you can enter your original data into this table directly. By the way, you must add a minus before the End Value.

2. Select a blank cell below this table, enter the below formula into it, and press the Enter key.

=XIRR(F3:F4,G3:G4)

3. For changing the result to percentage format, select the Cell with this XIRR function, click the Percent Style button

on the Home tab, and then change its decimal places with clicking the Increase Decimal button

or Decrease Decimal button

. See screen shot:

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Calculate Average Annual Growth Rate in Excel

To calculate the Average Annual Growth Rate in excel, normally we have to calculate the annual growth rates of every year with the formula = (Ending Value - Beginning Value) / Beginning Value, and then average these annual growth rates. You can do as follows:

1. Besides the original table, enter the below formula into the blank Cell C3 and, and then drag the Fill Handle to the Range C3:C11.

=(C4-C3)/C3

2. Select the Range D4:D12, click the Percent Style button

on the Home tab, and then change its decimal places with clicking the Increase Decimal button

or Decrease Decimal button

. See screenshot:

3. Average all annual growth rate with entering below formula into Cell F4, and press the Enter key.

=AVERAGE(D4:D12)

Up to now, Average Annual Growth Rate has been calculated and shown in the Cell C12.

Demo: calculate average/compound annual growth rate in Excel

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Manoj

about 6 years ago

#16319