CAGR Calculator (Compound Annual Growth Rate Calculator)

CAGR stands for Compound Annual Growth Rate. It is a way to express how fast a value grows each year if it grew at a steady, compounded rate. CAGR is often used to summarize multi-year growth in a single percentage.

Unlike a simple average, CAGR reflects compounding. It answers the question: if growth were smooth and steady, what annual rate would turn the beginning value into the ending value over the given time period?

The CAGR calculation uses the beginning value, ending value, and time period in years:

• CAGR = (ending / beginning)^(1 / years) - 1

If you add months, they are converted to a fraction of a year. This makes the calculation more accurate for partial periods.

Average annual growth is an arithmetic average. CAGR is geometric. Consider a two-year period where a value grows 50% in year one and drops 20% in year two. The average annual growth is (50% - 20%) / 2 = 15%, but the actual compounded growth is different. CAGR captures the true compounded rate.

This is why CAGR is common in finance and business summaries. It smooths the path and creates a comparable annual rate.

ROI measures total return. CAGR annualizes the return over time. Two investments can have the same ROI but very different CAGRs if the timelines differ. If one investment doubles in one year and another doubles in ten years, they share the same ROI but very different CAGRs.

For total return, use ROI. For annualized comparison, use CAGR. You can compare both on the ROI Calculator page.

CAGR assumes a steady growth path. Real-world values rarely move in a straight line, so CAGR is a simplification. It does not show volatility or drawdowns. It is useful for comparison, but it does not describe the full story of risk or variability.

Another way to think about CAGR is that it "connects the dots" between the beginning and ending values with a constant annual rate. This makes it easier to compare growth across different time spans, but it also hides the path taken to get there. Two investments can have the same CAGR and very different year-to-year results.

If you need the full story, you would look at a time series of returns or a full cash flow model. CAGR is a summary statistic, not a replacement for detailed analysis.

CAGR is most useful when you need a clean comparison across different time periods. Common use cases include revenue growth, subscriber growth, product adoption, or the overall performance of a portfolio over multiple years. It is also useful when you want to compare two outcomes that have different time horizons.

For example, a project that grows 50% in one year is not the same as one that grows 50% over five years. CAGR makes that difference obvious by expressing both as annualized rates.

A negative CAGR means the ending value is lower than the beginning value, on an annualized basis. It does not necessarily imply a straight-line decline in each year, but it does indicate that the overall direction was downward over the time period.

Negative CAGR can be useful for comparing declines across time. A -5% CAGR over 10 years is a different outcome than -5% over 2 years, even if the final values are similar.

If your time period includes months, the calculator converts months to a fraction of a year. This makes the calculation more accurate for partial periods. For example, 1 year and 6 months is treated as 1.5 years.

This is especially helpful for shorter time horizons where a few months can significantly change the annualized rate.

1. Simple growth example

• Beginning: 10,000
• Ending: 18,000
• Time: 5 years
• CAGR: about 12.47%

2. Loss example

• Beginning: 10,000
• Ending: 8,000
• Time: 3 years
• CAGR: negative, showing a decline per year

3. Stock investment example

• Beginning: 5,000
• Ending: 7,500
• Time: 4 years
• CAGR: about 10.7%

4. Startup valuation example

• Beginning: 2,000,000
• Ending: 10,000,000
• Time: 6 years
• CAGR: about 31.6%

5. Same total return, different time

• 100 to 150 in 1 year
• 100 to 150 in 5 years

Both are 50% total growth, but the 1-year CAGR is 50%, while the 5-year CAGR is about 8.45%.

6. Long-term vs short-term growth

• 100 to 200 in 2 years -> CAGR about 41.4%
• 100 to 200 in 10 years -> CAGR about 7.18%

7. Multi-year negative growth

• 1,200 to 900 over 5 years -> negative CAGR

8. Fractional year example

• 10,000 to 11,000 over 1 year and 6 months
• CAGR uses 1.5 years for a precise annualized rate

CAGR smooths growth across multiple periods by comparing the starting value to the ending value over the total number of years. The formula is (ending / beginning)^(1 / years) - 1. This shows the constant annual rate that would produce the same total growth.

Use this tool when you need a single annualized growth rate across multiple years. It is useful for comparing investments, revenue growth, or performance trends over uneven time horizons.