CAGR Calculator
Growth Details
Initial investment or revenue.
Final value after period.
Duration of growth.
Compound Annual Growth Rate
Your investment grew at this steady annual rate.
What is CAGR?
CAGR stands for Compound Annual Growth Rate. It is one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.
Unlike absolute return, which just tells you how much bigger an investment is today compared to when you started, CAGR tells you what the annual growth rate would be if the investment had grown at a steady rate every single year. It smooths out the "noise" of volatility.
The CAGR Formula
Calculating CAGR requires three definitions: your Ending Value, Beginning Value, and the number of years (N). The mathematical formula is:
For example, if you invested $1,000 and it grew to $2,500 over 5 years:
- 2500 / 1000 = 2.5
- 2.5 ^ (1/5) = 2.5 ^ 0.2 = 1.2011
- 1.2011 - 1 = 0.2011
- CAGR = 20.11%
When to Use CAGR
CAGR is widely used in finance and business for:
- Comparing Investments: It allows you to compare the performance of two different assets (e.g., a stock vs. real estate) or portfolio managers over the same time period.
- Track Business Performance: Companies use it to track growth in revenue, users, or market share over multiple years.
- Project Future Value: If you know the historical CAGR, you can use it to forecast what an investment might be worth in the future (assuming growth continues).
CAGR vs. Average Annual Return
This is a common point of confusion. The "Average Annual Return" is simply the arithmetic mean of yearly returns. CAGR is almost always lower than the average annual return because it accounts for the negative effect of losses.
Example: You invest $100. Year 1 it drops 50% (to $50). Year 2 it grows 50% (to $75).
- Average Return: (-50% + 50%) / 2 = 0%. (Sounds okay).
- Actual Result: You lost $25.
- CAGR: -13.4%. (Correctly shows you lost money).
Always trust CAGR over average returns for volatile assets.
Frequently Asked Questions
Can CAGR be negative?
Yes. If your ending value is lower than your starting value, the CAGR will be negative, indicating an annualized loss.
What is a good CAGR?
For the stock market (S&P 500), a simplified historical CAGR is typically around 7-10% (inflation-adjusted). For a startup or high-growth company, investors might look for a CAGR of 50% to 100%+.
Does CAGR include dividends?
Only if you include reinvested dividends in your "Ending Value." If you spent the dividends, the CAGR of the principal will look lower than the total return.