We know that the compound annual growth rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer than one year.

Let us consider Disney’s (NYSE: DIS) 10 year book value per share from 2002 – 2011 and compute its CAGR over that period:

Year Book Value
2002 $11.61 2003$11.82
2004 $13.05 2005$13.06
2006 $15.42 2007$15.67
2008 $17.73 2009$18.55
2010 $19.78 2011$21.21

our present value starting 2002 is $PV=\11.61$. Our future value (measure in 2011) is $FV=\21.21$. We know that:

$FV=PV (1 + r)^n$

where $r$ is the annual rate of return and $n$ is the number of periods over which we are compounding our value.

So in order for us to calculate the compound annual growth rate, $r$, we need to divide the value of an investment at the end of the period, $FV$, by its value at the beginning of that period, $PV$, and raise the result to the power of one divided by the period length $n$ (or n-th root), and subtract one from the subsequent result:

$r=(\frac{FV}{PV})^{(\frac{1}{n})} - 1$

For our Disney example this would be:

$(\frac{21.21}{11.61})^{(\frac{1}{9})} - 1=0.0692$ or $6.92\%$