CAGR Calculator
Calculate the Compound Annual Growth Rate for your investments or business revenue.
What is CAGR and Why Does It Matter?
CAGR, or Compound Annual Growth Rate, is one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time. Unlike absolute returns, which only tell you the total percentage gain, CAGR smoothes out the volatility and provides a single annual percentage number. This makes it easier to compare the performance of two different investments (like a volatile stock vs. a steady bond) over the same period.
The CAGR Formula Explained
The calculation might seem complex, but the logic is straightforward. It essentially asks: “What steady annual interest rate would get me from my starting balance to my ending balance in this many years?”
CAGR = ( End Value / Start Value ) ^ ( 1 / n ) – 1
- End Value: The value of the investment at the end of the period.
- Start Value: The initial investment amount.
- n: The number of years.
*Fig 1. CAGR represents the smoothed geometric progression ratio.*
Real-World Use Cases for CAGR
Investors and business owners use this metric daily for various purposes:
- Mutual Funds: To check the annualized return of a fund over 3, 5, or 10 years.
- Business Revenue: To track how fast a company’s sales are growing year-over-year.
- Portfolio Comparison: To compare a riskier asset class (like Crypto or Stocks) against a risk-free benchmark (like FDs).
Limitations to Keep in Mind
While powerful, CAGR does not tell the whole story. It ignores volatility. An investment could drop 50% in year one and recover in year two, showing a decent CAGR, but the investor would have endured high stress. Always analyze CAGR alongside standard deviation or absolute returns.
Frequently Asked Questions
A “good” CAGR depends on the asset class. For large-cap stocks, 10-12% is excellent. For real estate, 8-10% is standard. For startups or high-growth businesses, investors often look for a CAGR of 20% or higher.
Yes. If your Ending Value is lower than your Beginning Value, the CAGR will be negative, indicating a loss in capital over the specified time period.
Average return takes a simple arithmetic mean (e.g., +100% then -50% = +25% average). CAGR calculates the geometric mean, which accounts for compounding (e.g., +100% then -50% results in 0% CAGR because you are back to where you started). CAGR is more accurate for investments.
This basic CAGR calculator considers only the Initial and Final values. If you reinvested dividends, ensure your Final Value includes those accumulated dividends for an accurate calculation.
Technically yes, but CAGR stands for “Compound Annual Growth Rate”. For periods less than a year, absolute return is usually a more meaningful metric.