Compound Annual Growth Rate (CAGR) Calculator
CAGR is the single annual growth rate that would take an investment from its beginning value to its ending value, smoothing out yearly ups and downs. Enter beginning value, ending value, and years to see the rate.
CAGR Calculator
Forecasting & Planning
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How the CAGR Calculator Works
CAGR measures the smoothed annual rate that connects a starting and ending value. The formula is (ending / beginning)^(1 / years) - 1. It is not the actual yearly return, which may swing from large gains to losses; it is the constant rate that produces the same end result. That makes CAGR useful for comparing investments or business lines over different periods and for setting long-term targets. In the example, $10,000 growing to $16,105 over five years is a 10% CAGR. The measure has limits: it ignores volatility, assumes reinvestment, and can hide a terrible middle period. A volatile investment and a steady one can post the same CAGR while offering very different risk. Use CAGR alongside annual returns, drawdowns, and standard deviation, not instead of them. For projections, a CAGR based on a short or unusual window can mislead, so use a period long enough to reflect normal conditions.
Formula Used
CAGR = (Ending Value / Beginning Value)^(1 / Years) - 1
$10,000 grows to $16,105 over 5 years. CAGR = (16,105 / 10,000)^(1/5) - 1 = 10.0% per year.
When to Use This Calculator
- Comparing investments held over different periods.
- Reporting multi-year revenue growth to investors.
- Setting long-term targets from historical performance.
Common Mistakes
- Treating CAGR as the actual yearly return: It is a smoothed average; real returns vary and may include losing years.
- Using too short a window: A one- or two-year CAGR reflects noise more than a durable growth rate.
- Ignoring volatility: Two investments with the same CAGR can carry very different risk, which CAGR alone does not show.
Frequently Asked Questions
What is CAGR and why is it useful?
CAGR is the compound annual growth rate, the constant yearly rate that links a start and end value. It smooths volatility into one comparable number, which makes it useful for comparing investments, revenue lines, or markets over different periods.
How is CAGR calculated when returns fluctuate?
CAGR uses only the beginning value, ending value, and number of years, so it ignores the path in between. The formula is (end / start)^(1 / years) - 1. That simplicity makes it easy to compare, but it hides the volatility you experienced.
What are the limitations of CAGR?
CAGR assumes steady compounding, ignores cash flows and volatility, and can make a risky investment look smooth. It also depends heavily on the chosen start and end dates. Use it with annual returns and risk measures, not as the only metric.
What is the formula for CAGR in Excel?
In Excel, CAGR equals (ending value / beginning value)^(1 / years) - 1, or use RATE(years, 0, -beginning, ending). Both return the same smoothed annual rate. Confirm that the period count matches the number of years.
What is the difference between average growth rate and CAGR?
A simple average adds each year rate and divides by the number of years, which ignores compounding. CAGR uses only the start and end values and reflects compounding. A volatile series can show a high average yet a lower CAGR.
How This Page Is Reviewed
Written by the Recapflow Editorial Team and last reviewed . Every formula and worked example is cross-checked against the live calculator engine and a hand-worked example. This page is educational and does not replace professional financial, tax, or legal advice.