What CAGR tells you
The compound annual growth rate (CAGR) is the steady yearly rate that takes a beginning value to an ending value over a number of years. Real growth is bumpy: an investment return of +30% one year and −10% the next, revenue growth that stalls and then jumps. CAGR replaces that path with one smooth number you can compare across investments, companies and time periods of different lengths.
Years do not have to be whole. Three years and six months is 3.5 years. With two dates the calculator counts the whole calendar years between them and adds the share of the year in progress, so the same date one year later is exactly one year.
A quick example: $10,000 that grows to $20,000 in six years has a total growth of 100%. The CAGR is (20,000 ÷ 10,000)1 ÷ 6 − 1 = 12.25% a year. Dividing 100% by six years would suggest 16.67%, but that ignores compounding: at 16.67% a year you would end with well over $25,000.
CAGR examples
| Example | Beginning | Ending | Years | Total growth | CAGR |
|---|---|---|---|---|---|
| Stock portfolio | $20,000 | $31,500 | 6 | 57.50% | 7.86% |
| Company revenue | $2,400,000 | $3,900,000 | 4 | 62.50% | 12.91% |
| Newsletter subscribers | 1,200 | 9,500 | 3 | 691.67% | 99.30% |
| Home value | $310,000 | $415,000 | 8 | 33.87% | 3.71% |
| Fund that lost money | $15,000 | $12,000 | 3 | −20.00% | −7.17% |
The home looks like a solid gain at 33.87% in total, yet spread over eight years it is only 3.71% a year. The subscriber count nearly doubles every year, which is typical for something that starts small. CAGR works for any quantity that compounds, not only money: customers, users, units sold or population.
CAGR vs average annual return
An average annual return can mean two different things. The simple, arithmetic average adds up the yearly returns and divides by the number of years, and it is not what your money earned. (The average annual total return in a mutual fund report is already compounded, so it matches CAGR.) Losses hurt more than gains of the same size help, because a gain later works on a smaller amount. CAGR, also called the geometric mean return, takes that into account.
| Yearly returns | Average | CAGR | $10,000 becomes |
|---|---|---|---|
| +50%, −50% | 0.00% | −13.40% | $7,500 |
| +10%, +10%, +10%, +10%, +10% | 10.00% | 10.00% | $16,105 |
| +25%, −15%, +30%, −5%, +10% | 9.00% | 7.62% | $14,434 |
| +60%, −30%, +40%, −20%, +15% | 13.00% | 7.60% | $14,426 |
The first row is the classic trap: a 50% gain followed by a 50% loss averages 0%, yet $10,000 turns into $15,000 and then into $7,500. The last two rows have almost the same CAGR, but the bumpier one shows a much higher average. As a rough rule, the gap between the two is about half the variance of the returns, so it grows quickly as the swings get bigger. Only when every year has the same return do the average and the CAGR match. Switch the calculator to Yearly returns to test your own numbers.
When CAGR does not work
- A beginning value of zero or below. There is nothing to compound, so no yearly percentage exists. A business that went from a loss to a profit has no CAGR for its profit; report the change in money instead, or use revenue, which stays positive.
- A change of sign. From a positive value to a negative one, no steady rate connects the two. A fall to exactly zero is the one exception: it is a total loss, a CAGR of −100%.
- Money added or withdrawn. Deposits look like growth and withdrawals look like losses. Use an internal rate of return (XIRR) for real accounts, or the compound interest calculator to plan yearly additions at a fixed rate.
- Very short periods. Turning a few months into a yearly rate assumes the same pace for a whole year. A 10% gain in three months becomes about 46% a year, which says little about the next nine months.
- Hand-picked dates. CAGR only sees two points. Starting right after a crash or ending at a peak can make the same investment look brilliant or poor. Check a few different start and end years before you trust the number.
CAGR also hides risk: two investments with the same CAGR can have taken very different paths. For a fuller picture, look at the year by year table and chart in the calculator, and compare with the ROI calculator for the plain return on a single investment.
How to use the CAGR calculator
- 1Choose CAGR, enter the beginning value and the ending value, and set the length in years and months or with a start and an end date.
- 2To project a value instead, choose End value and enter a growth rate. To compare the average annual return with the CAGR, choose Yearly returns and paste one return per year.
- 3Read the result, the total growth and the year by year table, and copy the result, the link or the table as CSV.
Frequently asked questions
What is a good CAGR?
It depends on what you measure and on the risk involved. Compare the CAGR with a sensible benchmark over the same years: a broad index fund for an investment, your industry or your own past years for company revenue, inflation for prices. A CAGR only means something next to an alternative.
How do I calculate CAGR in Excel or Google Sheets?
Use =(B2/A2)^(1/C2)-1 with the beginning value in A2, the ending value in B2 and the number of years in C2, then format the cell as a percentage. Both Excel and Google Sheets also have RRI, which does the same: =RRI(C2, A2, B2).
Can CAGR be negative?
Yes. When the ending value is lower than the beginning value, CAGR is negative and shows the average yearly decline. If the value falls to zero, CAGR is −100%, because everything was lost, however many years it took.
Why can’t CAGR be calculated from zero or a negative number?
CAGR asks which steady percentage turns the beginning value into the ending value. Starting from zero, no percentage ever gets you anywhere, and from a negative number or across a change of sign the percentages lose their meaning. Show the change in money instead, or measure from the first year with a positive value.
What is the difference between CAGR and average annual return?
A simple average annual return adds up the yearly returns and divides by the number of years. CAGR is the steady rate that really connects the start and the end. When returns go up and down, the average is always higher than the CAGR: +50% and then −50% averages 0%, yet you are left with 25% less money.
Does CAGR work when I added or withdrew money?
No. CAGR only knows the beginning and the ending value, so deposits would count as growth and withdrawals as losses. For an account with money going in and out, use an internal rate of return (XIRR in a spreadsheet). To plan regular deposits at a fixed rate, use the compound interest calculator.