CAGR formula
CAGR = (Ending value ÷ Beginning value)1/years − 1
Example: An investment grew from $5,000 to $12,000 over 8 years. The ratio is 2.4, and 2.41/8 − 1 = 11.56% per year. Total growth is 140%.
Using CAGR well
- Compare periods of equal risk. A high CAGR achieved with large swings may be less attractive than a slightly lower, steady one.
- Watch the endpoints. CAGR depends only on the first and last values; starting at a market low or high can distort it.
- Project carefully. Future value = present value × (1 + CAGR)years, but past growth does not guarantee future growth.
For growth with ongoing deposits, use the compound interest calculator.
How to use the calculator
- Enter the beginning value — the amount invested or the starting revenue, users or price.
- Enter the ending value after the period.
- Enter the number of years; decimals are allowed (2.5 years = 2 years 6 months).
- Read the compound annual growth rate and the total growth.
What different growth rates mean
| CAGR | $10,000 after 5 years | After 10 years | After 20 years | Time to double |
|---|---|---|---|---|
| 3% | $11,593 | $13,439 | $18,061 | 23.4 years |
| 5% | $12,763 | $16,289 | $26,533 | 14.2 years |
| 7% | $14,026 | $19,672 | $38,697 | 10.2 years |
| 10% | $16,105 | $25,937 | $67,275 | 7.3 years |
| 12% | $17,623 | $31,058 | $96,463 | 6.1 years |
| 15% | $20,114 | $40,456 | $163,665 | 5.0 years |
CAGR vs. average annual return
CAGR smooths a bumpy path into one steady rate. It is not the same as the simple average of yearly returns. If an investment gains 50% one year and loses 50% the next, the average return is 0%, but $100 becomes $150 and then $75 — a CAGR of −13.4%. The arithmetic average overstates what investors actually earn whenever returns vary; CAGR (the geometric mean) reflects the real result.
Where CAGR is used
- Investments: comparing funds or stocks over the same period.
- Business: revenue, customer or profit growth over several years — a common figure in annual reports and pitch decks.
- Economics and markets: growth of GDP, population or a market segment.
Limitations
- It hides volatility. Two investments with the same CAGR can have very different risk and drawdowns.
- It ignores cash flows. If you added or withdrew money during the period, CAGR on the start and end balances is misleading. Use an internal rate of return (IRR or XIRR in spreadsheets) instead.
- It depends on the dates you choose. Starting just before a crash or just after one changes the answer dramatically; check several periods.
- It is not a forecast. A past CAGR doesn’t mean the same growth will continue.
For a quick estimate of doubling time, divide 72 by the growth rate — see the Rule of 72 calculator.
Frequently asked questions
What does CAGR mean?
Compound annual growth rate is the constant yearly rate that would take a starting value to an ending value over a given number of years, assuming growth compounds. It smooths out the ups and downs of the actual path.
How is CAGR different from average annual return?
An arithmetic average overstates growth when returns vary. If an investment gains 50% one year and loses 50% the next, the average return is 0%, but you have actually lost 25%. CAGR (−13.4% here) reflects what really happened.
Can CAGR be negative?
Yes. If the ending value is lower than the beginning value, CAGR is negative and shows the average yearly rate of decline.
What is CAGR used for?
Comparing investment performance, measuring revenue or user growth of a business, and projecting future values. It is also widely used in company reports and market research.
Can CAGR be negative?
Yes. If the ending value is below the beginning value, CAGR is negative. $10,000 falling to $8,000 over 3 years is a CAGR of −7.2%.
How do I calculate CAGR in Excel?
Use =(End/Begin)^(1/Years)-1, or =RRI(Years, Begin, End).