What is CAGR and when should I use it?

CAGR (compound annual growth rate) is the constant annual rate that, if applied each year, would grow the starting value to the ending value over the period. It is the standard way to summarize multi-year growth in one number — used for investments, business revenue, KPIs, property values, and any metric that compounds. Use it whenever you want a single annualized rate that is comparable across periods of different length.

How is CAGR different from total return or a simple average?

Total return is the cumulative percent change over the whole period — e.g. 100% if the value doubled. A simple (arithmetic) average of yearly returns adds the percent changes and divides by the number of years; that overstates compounding because it ignores the order and the base each year compounds against. CAGR is the geometric mean of the yearly growth factors, which is what you actually live through when each year compounds on the previous one.

When is CAGR misleading?

CAGR smooths the path — it does not see volatility. A stock that had a deep drawdown mid-period and recovered shows the same CAGR as a steady straight line between the two endpoints. For volatile assets (equities, crypto, early-stage revenue) the CAGR can hide losses an investor actually experienced and the path-dependent risk that came with them. Pair CAGR with a chart of the path or with a volatility/drawdown number when the underlying series is bumpy.

How does this differ from the compound interest calculator?

They are inverses. The compound interest calculator goes forward — given a starting value and an annual rate, it tells you the future value. CAGR goes backward — given a starting value and an ending value, it tells you the rate. Use compound interest when you have a rate and want to project; use CAGR when you have two snapshots and want the implied rate.

Is past CAGR predictive of future returns?

No. CAGR is descriptive — it summarizes what already happened. It does not forecast the next year, the next decade, or any single point in between. A high historical CAGR for a stock or fund tells you how it performed over a specific window; future returns depend on entirely different conditions. Use CAGR for comparison and reporting, not as an extrapolation.

How do I use CAGR for business revenue growth?

Enter the revenue at the start of the window, the revenue at the end of the window, and the number of years between them. The result is the annualized growth rate of that revenue line — directly comparable across business units, time periods, or against industry benchmarks. The same applies to user counts, ARR, units sold, or any other KPI that compounds.

FINFinancial

CAGR Calculator

Calculate the compound annual growth rate (CAGR) of an investment, business revenue line, or any value that changes over time. Enter the starting value, the ending value, and the number of years — get the smoothed annual rate, the total growth, and the multiplier.

Currency

Beginning Value

Ending Value

Years

years

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How It Works

Formula

\text{CAGR} = \left(\frac{V_\text{end}}{V_\text{begin}}\right)^{1/n} - 1

\text{totalGrowth} = \frac{V_\text{end} - V_\text{begin}}{V_\text{begin}}

Where

$V_\text{begin}$: Beginning value at the start of the period
$V_\text{end}$: Ending value at the end of the period
$n$: Number of years between beginning and ending value

Divide the ending value by the beginning value to get the multiplier. Take the n-th root of the multiplier (where n is the number of years) to get the annual growth factor. Subtract one and multiply by 100 to express it as a percent. The total growth is the multiplier minus one as a percent — that is the cumulative change ignoring annualization.

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