Investing basics
How to Calculate CAGR
A calm explanation of CAGR, what it does and does not tell you, and how to compare long-term growth without overreading it.
CAGR means compound annual growth rate. It shows the steady annual rate that would take a starting value to an ending value over a period. Use the CAGR calculator to compare investment or business growth scenarios.
The short version
The CAGR formula is:
CAGR = (ending value / starting value)^(1 / years) - 1
Multiply the result by 100 to show it as a percentage.
CAGR smooths the path between start and finish. It does not show volatility, losses during the period, deposits, withdrawals, fees, or tax.
Try it with your own numbers
Use the CAGR calculator for start-to-end growth. Use the investment return calculator when you need total return, or the compound interest calculator when you want to model regular deposits.
How the calculation works
CAGR is a compound rate, not a simple average. A portfolio that rises 50% one year and falls 20% the next does not have a simple 15% annual growth result. The ending value matters.
Start with ending value divided by starting value. Then raise that ratio to 1 divided by the number of years. Finally subtract 1 and convert to a percentage.
A worked example
Suppose an investment grows from 10,000 to 16,000 over 5 years.
- Growth multiple: 16,000 / 10,000 = 1.6
- Annualized multiple: 1.6^(1 / 5) = about 1.0986
- CAGR: 1.0986 - 1 = 0.0986
- CAGR as a percentage: about 9.86%
The investment ended as if it had grown by about 9.86% per year, compounded annually.
Watch-outs
- Using a simple average instead of a compound rate.
- Ignoring deposits and withdrawals.
- Comparing different time periods as if they were the same.
- Treating CAGR as a prediction.
- Forgetting fees, tax, currency, or inflation.
How to read the result
Use CAGR to compare long-term growth between investments, revenue, users, or other metrics with clear start and end values. It is useful for summary comparison, but it hides the journey. A high CAGR can still include large drawdowns.
This guide is educational only and is not investment advice.
Tools mentioned in this article
- Investment return calculator
- Compound interest calculator
- Dividend yield calculator
- Stock profit/loss calculator
Reader questions
Is CAGR the same as annual return?
It is an annualized compound return between two points. Actual yearly returns may be very different.
Can CAGR be negative?
Yes. If the ending value is lower than the starting value, CAGR is negative.
Does CAGR include dividends?
Only if the ending value includes reinvested dividends or total return data. Otherwise it measures price or value change only.
Why use CAGR instead of total return?
Total return shows the full change. CAGR makes different time periods easier to compare.
