CAGR Calculator

What CAGR measures

CAGR stands for compound annual growth rate. It answers the question: what steady yearly rate would take this starting value to this ending value over this many years? The formula is CAGR = (ending ÷ starting)^(1 ÷ years) − 1. An investment that grows from 10,000 to 25,000 over 8 years has a CAGR of 12.14 percent, because 10,000 × 1.1214^8 = 25,000.

The result smooths out the ups and downs into a single comparable number, which is why it is used for investment returns, revenue growth, website traffic, population and any quantity that compounds over time.

Why the average of yearly returns misleads

The arithmetic average of yearly returns overstates growth when returns vary. Suppose an investment of 100 rises 50 percent in year one (to 150) and falls 50 percent in year two (to 75). The average return is 0 percent, but you have lost a quarter of your money. The CAGR is (75 ÷ 100)^(1/2) − 1 = −13.4 percent per year, which describes what actually happened.

The larger the swings, the wider the gap between the average and the CAGR. That is why fund factsheets and serious analyses quote compound rates, and why you should be sceptical of a claim that says "average return of 12 percent" without saying how it was measured.

Comparing investments fairly

CAGR lets you compare investments held for different lengths of time. One fund grew from 5,000 to 8,000 in five years (9.86 percent a year), while another grew from 5,000 to 7,000 in three years (11.87 percent a year). The total gain of the first is larger, but the second grew faster. Always compare CAGRs over the same or similar periods, since a strong start or end date can flatter a result.

It also works for business metrics. If monthly revenue grew from 20,000 to 35,000 over two years, the CAGR is about 32 percent. If a website's monthly visitors went from 3,000 to 12,000 in 18 months, use 1.5 years in the calculation and you will see the yearly growth rate that would produce the same result. Enter decimal years to match any period.

Using CAGR to set targets

The formula can be turned around to plan. If you want to double your money in 10 years, you need a CAGR of about 7.18 percent, since 2^(1/10) − 1 = 0.0718. Tripling in 15 years needs about 7.6 percent. This gives a reality check on plans: a target that needs a 30 percent yearly return for a decade is unlikely, while one that needs 6 percent is plausible.

Use the Compound Interest Calculator to see what a given rate produces with regular deposits, and the Savings Goal Calculator to plan around a date. The ROI Calculator shows the total return that CAGR breaks down into a yearly rate.

Limitations

CAGR assumes the money stayed invested the whole time and that nothing was added or withdrawn. If you made deposits or took money out, the number can be misleading, and a money-weighted return such as the internal rate of return is more appropriate. CAGR also says nothing about risk: two investments with the same CAGR can have very different swings along the way.

• It needs positive starting and ending values. A value that reaches zero has no defined CAGR.
• It depends heavily on the start and end dates: choose them for a reason, not for the best result.
• It is a past-only measure. It describes what happened, not what will happen next.
• Adjust for inflation with the Inflation Calculator if you want the real growth rate.

Learn more

The article CAGR explained walks through the formula with more examples, including how to annualize a return you only know in total. If you are comparing simple growth with compounding, simple vs compound interest is a good companion. The calculator handles decimal years, shows the total growth and the growth multiple, and draws the smooth path implied by the CAGR. All calculations stay in your browser.