CAGR Calculator (Compound Annual Growth Rate)

Calculate the compound annual growth rate to measure investment performance and business growth over time.

Determine the annualized rate of return for investments, business metrics, or any value that changes over time. CAGR provides a smoothed annual growth rate that accounts for compounding effects.

Examples

Click on any example to load it into the calculator.

Stock Investment

Stock Investment

A stock that grew from $10,000 to $15,000 over 5 years.

Beginning Value: $10000

Ending Value: $15000

Years: 5

Business Revenue Growth

Business Revenue Growth

Company revenue growth from $500,000 to $800,000 over 3 years.

Beginning Value: $500000

Ending Value: $800000

Years: 3

Real Estate Investment

Real Estate Investment

Property value appreciation from $200,000 to $280,000 over 7 years.

Beginning Value: $200000

Ending Value: $280000

Years: 7

Mutual Fund Performance

Mutual Fund Performance

Mutual fund growth from $25,000 to $35,000 over 4.5 years.

Beginning Value: $25000

Ending Value: $35000

Years: 4.5

Other Titles
Understanding CAGR Calculator: A Comprehensive Guide
Master the art of measuring compound growth rates. Learn how to calculate, interpret, and apply CAGR for investment analysis, business planning, and financial decision-making.

What is CAGR (Compound Annual Growth Rate)?

  • Definition and Core Concepts
  • Why CAGR Matters in Finance
  • CAGR vs Other Growth Metrics
Compound Annual Growth Rate (CAGR) is a financial metric that measures the mean annual growth rate of an investment or business metric over a specified time period, assuming that the value grows at a constant rate each year. Unlike simple average growth rates, CAGR accounts for the compounding effect, providing a more accurate representation of actual performance. This makes CAGR an essential tool for comparing investments with different time horizons and for projecting future growth based on historical performance.
The Mathematical Foundation of CAGR
CAGR is calculated using the formula: CAGR = (Ending Value / Beginning Value)^(1/number of years) - 1. This formula assumes that growth occurs at a constant rate throughout the period, which is rarely the case in reality. However, this assumption provides a useful benchmark for comparing different investments or business metrics. The formula essentially answers the question: 'What constant annual growth rate would be needed to transform the beginning value into the ending value over the specified period?'
CAGR vs Simple Average Growth Rate
While simple average growth rate might seem intuitive, it can be misleading when dealing with compound growth. For example, if an investment grows 50% in year 1 and then loses 25% in year 2, the simple average would be 12.5%, but the actual ending value would be 112.5% of the original (1.5 × 0.75 = 1.125). CAGR would correctly show 6.07% annual growth. This difference becomes more pronounced over longer periods and with more volatile returns.
The Compounding Effect in CAGR
CAGR's power lies in its recognition of the compounding effect—the phenomenon where growth in one period becomes the base for growth in the next period. This is particularly important for long-term investments where the difference between simple and compound growth can be substantial. For instance, a 10% simple average return over 20 years would suggest doubling the investment, but with compounding, the actual growth would be much higher.

Key CAGR Concepts:

  • CAGR assumes constant annual growth rate throughout the period
  • CAGR accounts for the compounding effect of growth
  • CAGR is useful for comparing investments with different time horizons
  • CAGR provides a smoothed annual growth rate that may not reflect actual year-to-year volatility

Step-by-Step Guide to Using the CAGR Calculator

  • Data Collection and Preparation
  • Input Methodology
  • Result Interpretation and Analysis
Accurate CAGR calculation requires precise data collection, careful input, and thoughtful interpretation. Follow this systematic approach to ensure your CAGR analysis provides meaningful insights for investment decisions and business planning.
1. Define Your Measurement Period and Values
Start by clearly defining the beginning and ending points of your analysis. For investments, use the actual purchase price and current market value. For business metrics, use consistent measurement points (e.g., year-end values, quarterly averages). Ensure that your beginning and ending values are measured using the same methodology and accounting standards. The time period should be clearly defined—whether it's exactly 5 years, 3.5 years, or any other specific duration.
2. Gather Accurate Financial Data
Collect reliable data from authoritative sources. For stocks, use adjusted closing prices that account for dividends and stock splits. For business metrics, use audited financial statements or consistent internal reporting. For real estate, use comparable sales or professional appraisals. Avoid using estimated or projected values unless clearly noted, as these can skew your CAGR calculation and lead to misleading conclusions.
3. Input Data with Precision
Enter your beginning value, ending value, and number of years with as much precision as possible. Use decimal places for partial years (e.g., 3.5 for 3 years and 6 months). Ensure all values are in the same currency and units. Double-check your inputs before calculating, as small errors can significantly impact the CAGR result. Remember that CAGR is sensitive to the accuracy of both the values and the time period.
4. Analyze Results in Context
Interpret your CAGR result against relevant benchmarks and historical data. Compare with market indices, industry averages, or similar investments. Consider the time period—longer periods generally provide more reliable CAGR calculations. Factor in risk, volatility, and other qualitative factors that CAGR doesn't capture. Use CAGR as one tool in your broader investment or business analysis toolkit.

CAGR Calculation Examples:

  • Investment: $10,000 to $15,000 over 5 years = 8.45% CAGR
  • Business: $500K to $800K revenue over 3 years = 16.96% CAGR
  • Real Estate: $200K to $280K over 7 years = 5.47% CAGR
  • Mutual Fund: $25K to $35K over 4.5 years = 7.72% CAGR

Real-World Applications of CAGR Analysis

  • Investment Performance Evaluation
  • Business Growth Analysis
  • Financial Planning and Projections
CAGR analysis extends far beyond simple number crunching—it serves as a fundamental tool for strategic decision-making across various financial and business contexts. Understanding how to apply CAGR insights can significantly improve investment outcomes and business planning.
Investment Performance and Portfolio Management
Investors use CAGR to evaluate and compare different investment opportunities, assess portfolio performance, and make informed allocation decisions. By calculating CAGR for various asset classes, sectors, or individual securities, investors can identify which investments have delivered the best risk-adjusted returns. CAGR also helps in setting realistic return expectations and in communicating performance to clients or stakeholders. For long-term investors, CAGR provides a more meaningful measure than short-term volatility.
Business Growth and Strategic Planning
Business leaders use CAGR to analyze revenue growth, market expansion, customer acquisition, and other key performance indicators. CAGR helps identify which products, markets, or business units are growing most effectively. This analysis informs strategic decisions about resource allocation, expansion opportunities, and competitive positioning. CAGR also serves as a benchmark for setting growth targets and evaluating management performance.
Financial Planning and Goal Setting
Financial planners use CAGR to help clients understand the growth potential of their investments and set realistic financial goals. By analyzing historical CAGR of different asset classes, planners can project future portfolio values and help clients determine how much they need to save to reach their objectives. CAGR also helps in retirement planning, education funding, and other long-term financial goals.

CAGR Application Scenarios:

  • Comparing mutual fund performance over different time periods
  • Evaluating business unit growth for resource allocation decisions
  • Projecting retirement portfolio growth based on historical returns
  • Assessing real estate investment performance across different markets

Common Misconceptions and Best Practices

  • CAGR Limitations and Pitfalls
  • Proper Interpretation Guidelines
  • When to Use Alternative Metrics
While CAGR is a powerful analytical tool, understanding its limitations and proper application is crucial for making sound financial decisions. Misinterpreting CAGR can lead to poor investment choices and unrealistic expectations.
Myth: CAGR Represents Actual Year-to-Year Performance
One common misconception is that CAGR represents the actual growth rate in each year. In reality, CAGR is a smoothed average that assumes constant growth. The actual year-to-year performance may vary significantly, with some years showing much higher or lower growth rates. This smoothing effect can mask important information about volatility and risk. Investors should supplement CAGR analysis with other metrics like standard deviation, maximum drawdown, and Sharpe ratio to get a complete picture of investment performance.
CAGR's Sensitivity to Time Period Selection
CAGR can be highly sensitive to the chosen time period, especially for volatile investments or businesses. Starting or ending the measurement period at different points can dramatically change the CAGR result. This 'endpoint bias' can lead to misleading conclusions. Best practice is to use multiple time periods and to be transparent about the chosen measurement window. Consider calculating CAGR for different periods (1-year, 3-year, 5-year, 10-year) to get a more comprehensive view.
When CAGR May Not Be the Best Metric
CAGR is not always the most appropriate metric. For investments with significant cash flows (deposits or withdrawals), time-weighted return or internal rate of return (IRR) may be more accurate. For businesses with seasonal patterns or irregular growth, other metrics might provide better insights. CAGR also doesn't account for risk, so it should be used alongside risk-adjusted return measures for a complete analysis.

Best Practices for CAGR Analysis:

  • Use multiple time periods to avoid endpoint bias
  • Supplement CAGR with volatility and risk metrics
  • Consider the context and limitations of CAGR
  • Be transparent about measurement periods and assumptions

Mathematical Derivation and Advanced Applications

  • CAGR Formula Derivation
  • Statistical Analysis and Confidence Intervals
  • Predictive Modeling with CAGR
Understanding the mathematical foundation of CAGR enables more sophisticated analysis and helps identify when and how to apply this metric effectively in complex financial scenarios.
Derivation of the CAGR Formula
The CAGR formula derives from the compound interest formula: Ending Value = Beginning Value × (1 + r)^n, where r is the annual growth rate and n is the number of years. Solving for r gives us: r = (Ending Value / Beginning Value)^(1/n) - 1. This formula assumes that growth compounds annually at a constant rate. The mathematical elegance of this formula lies in its ability to convert complex, variable growth patterns into a single, comparable metric.
Statistical Considerations in CAGR Analysis
CAGR calculations can be enhanced with statistical analysis to provide confidence intervals and assess the reliability of the growth rate estimate. For investments with high volatility, the calculated CAGR may not be statistically significant or may have wide confidence intervals. Understanding the statistical properties of CAGR helps in interpreting results and making informed decisions about the reliability of growth projections.
Advanced CAGR Applications in Financial Modeling
CAGR serves as a foundation for more sophisticated financial modeling, including discounted cash flow analysis, valuation models, and scenario planning. By combining CAGR with other financial metrics, analysts can create comprehensive models for investment valuation, business planning, and risk assessment. CAGR also plays a crucial role in Monte Carlo simulations and other probabilistic modeling techniques used in advanced financial analysis.

Advanced CAGR Applications:

  • Discounted cash flow valuation using CAGR for terminal value projections
  • Monte Carlo simulations incorporating CAGR volatility
  • Scenario analysis with different CAGR assumptions
  • Risk-adjusted CAGR calculations for portfolio optimization