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CAGR vs. IRR: What's the Difference?

The article from MSN Money discusses the differences between Compound Annual Growth Rate (CAGR) and Internal Rate of Return (IRR), two metrics used to evaluate investment performance. CAGR provides a smoothed annual growth rate over a specified period, essentially showing the mean annual growth rate of an investment as if it had grown at a steady rate. It's useful for comparing the historical performance of investments over time. On the other hand, IRR is a metric used in capital budgeting to estimate the profitability of potential investments. It calculates the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. IRR is particularly useful for comparing the efficiency of different investments or projects, especially when they have different cash flow patterns. The key difference lies in their application: CAGR is backward-looking, focusing on past performance, while IRR is forward-looking, used for forecasting and decision-making in investment scenarios.

Read the Full Investopedia Article at:
[ https://www.msn.com/en-us/money/smallbusiness/cagr-vs-irr-what-s-the-difference/ar-AA1BV2yo ]