CAGR Calculator

What Is CAGR (Compound Annual Growth Rate)?

The Compound Annual Growth Rate (CAGR) is one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time. It represents the mean annual growth rate of an investment over a specified period of time longer than one year, assuming the investment compounds over that period.

Unlike average annual return, CAGR smooths out the growth rate, ignoring short-term fluctuations and volatility, to give you a single constant rate that describes how an investment would have grown if it grew at a steady rate.

CAGR vs Average Annual Return

These two metrics are commonly confused but can produce meaningfully different numbers. Average annual return is a simple arithmetic mean of each year's percentage return — it treats every year equally and can be distorted by volatility. CAGR is a geometric mean that reflects the actual compounding path from the beginning value to the ending value, which is why it's considered the more accurate measure of "true" annualized growth.

Example: an investment that gains 100% one year and loses 50% the next has an average annual return of 25% ((100% − 50%) / 2), but the actual value is unchanged — a CAGR of 0%. This gap is exactly why CAGR, not simple averaging, is the standard metric used in fund fact sheets and investment comparisons.

CAGR vs XIRR: Which Should You Use?

CAGR works well for a single lump-sum investment made once and held for a fixed period. It breaks down, however, when there are multiple cash flows at different times — such as monthly SIP contributions, partial withdrawals, or additional purchases — because CAGR only looks at a single beginning value and single ending value.

XIRR (Extended Internal Rate of Return) solves this by accounting for the exact date and amount of every individual cash flow, making it the more accurate metric for investments like SIPs, where money goes in at different times rather than all at once. If your investment involved more than one contribution or withdrawal date, use an XIRR Calculator instead of CAGR for an accurate annualized return.

Example CAGR Scenarios

Beyond your existing investment-growth table, CAGR is commonly applied outside pure investing too:

Use Case	Beginning Value	Ending Value	Years	CAGR
Company revenue growth	$2M	$8M	6	25.99%
Population growth	50,000	62,000	8	2.71%
Mutual fund NAV	$10.00	$18.50	7	9.20%
Startup user base	10,000 users	500,000 users	4	172.05%

CAGR is a general-purpose growth-rate formula — it applies to any metric that compounds over time, not just money, which is why it's used across finance, business analytics, and even demographics.

Here is a table demonstrating the CAGR calculated for various investment scenarios:

Initial Value (Beginning)	Final Value (Ending)	Time Horizon (Years)	Calculated CAGR (%)
$1,000	$2,500	5 Years	20.11%
$10,000	$15,000	3 Years	14.47%
$5,000	$12,000	10 Years	9.15%
$50,000	$40,000	5 Years	-4.36%

These examples illustrate that CAGR can measure both growth and decline (negative CAGR).

CAGR Formula

To calculate the Compound Annual Growth Rate manually, use the following formula:

$$CAGR = \left(\frac{Ending\ Value}{Beginning\ Value}\right)^{\frac{1}{n}} - 1$$

Where:

• Ending Value (EV) = the value of the investment at the end of the period
• Beginning Value (BV) = the value of the investment at the start of the period
• n = the number of years (or compounding periods)

Step-by-Step CAGR Calculation Example

Imagine you buy a stock in 2020 for $1,000 (Beginning Value) and sell it in 2025 for $2,000 (Ending Value). The duration is 5 years (n = 5).

1. Divide the Ending Value by the Beginning Value: $2,000 / $1,000 = 2
2. Raise the result to the power of 1/n (1/5 or 0.20): $2^{0.20} \approx 1.1487$
3. Subtract 1: $1.1487 - 1 = 0.1487$
4. Multiply by 100 to get a percentage: 14.87%

This means your investment grew at a compound annual rate of 14.87% per year.

How to Interpret Your CAGR Result

• Positive CAGR — the investment grew over the period; the higher the number, the faster the compounding growth.
• 0% CAGR — the investment ended at the same value it started, regardless of what happened in between.
• Negative CAGR — the investment's ending value was lower than its beginning value, indicating a net loss annualized over the period.

A CAGR figure is only meaningful in the context of the time period it covers — a 15% CAGR over 2 years and a 15% CAGR over 15 years represent very different levels of consistency and risk, even though the annualized number is identical.

What Counts as a "Good" CAGR?

There's no universal benchmark since it depends entirely on the asset class and time horizon. As rough reference points: broad stock market indices have historically delivered roughly 8–12% CAGR over long periods, real estate typically trails that, and high-growth individual stocks or early-stage business metrics can post CAGRs well above 20–30% — though usually with correspondingly higher risk or a shorter, less reliable measurement window. Always compare CAGR against a relevant benchmark (an index, a peer company, inflation) rather than judging it in isolation.

Limitations of CAGR

CAGR assumes a steady growth rate and ignores volatility or the path of returns in between. It also does not account for mid-period cash additions or withdrawals from the investment.

Common Uses for CAGR

• Comparing investment performance across different funds, stocks, or asset classes on a like-for-like annualized basis
• Evaluating business growth — revenue, user base, or profit growth rate year over year
• Financial projections — estimating a future value by applying a historical or assumed CAGR forward
• Setting expectations for Systematic Investment Plans (SIP) by modeling historical returns
• Comparing investments held over different time periods, since CAGR normalizes everything to an annual rate