CAGR Calculator

What Is CAGR and How Is It Calculated?

CAGR (Compound Annual Growth Rate) measures the smoothed annual rate at which a value grows from its beginning balance to its ending balance over a specified period. The formula: CAGR = (Ending Value / Beginning Value)^(1/Years) - 1. Enter a starting value, ending value, and the number of years in the calculator above to find the CAGR, total return percentage, growth multiple, and absolute gain. CAGR strips out year-to-year volatility to show the steady growth rate that would produce the same final result.

CAGR Calculation Examples

An investment growing from $10,000 to $25,000 over 8 years: CAGR = (25,000/10,000)^(1/8) - 1 = 12.13%. A business with revenue of $500,000 growing to $1,200,000 over 5 years: CAGR = (1,200,000/500,000)^(1/5) - 1 = 19.14%. A house purchased for $250,000 now valued at $380,000 after 10 years: CAGR = (380,000/250,000)^(1/10) - 1 = 4.28%. These numbers are directly comparable even though the investments, timeframes, and absolute amounts are completely different. That standardization is the primary value of CAGR.

Why Does CAGR Differ from Average Annual Return?

Average return sums each year percentage and divides by the number of years. This overstates actual performance when returns are volatile. Example: a stock gains 50% in year one then loses 33% in year two. Average return: (50% + -33%) / 2 = 8.5%. But actual result: $10,000 becomes $15,000 then drops to $10,050. CAGR: (10,050/10,000)^(1/2) - 1 = 0.25%. The average says 8.5% growth while reality delivered 0.25%. CAGR captures the actual investor experience because it reflects the geometric compounding of returns, not the arithmetic average.

Using CAGR to Compare Investments

Investment A: $20,000 grew to $38,000 over 6 years. CAGR = 11.3%. Investment B: $20,000 grew to $52,000 over 10 years. CAGR = 10.0%. Despite Investment B producing a larger absolute gain ($32,000 vs $18,000), Investment A grew at a faster rate per year. If both investments remained available, reinvesting at their respective rates for 10 years would produce: A at 11.3% = $58,200 vs B at 10.0% = $51,875. CAGR enables this type of normalized comparison that raw dollar amounts cannot provide.

CAGR for Business Revenue and Earnings Growth

Investors and analysts use CAGR to evaluate company performance. A company with $2 million revenue growing to $5 million over 4 years has a revenue CAGR of 25.7%. A competitor growing from $8 million to $14 million over the same period has a CAGR of 15.0%. The smaller company is growing faster in percentage terms despite the larger company adding more absolute revenue ($6M vs $3M). Venture capital and private equity firms target portfolio companies with revenue CAGR above 20-30%. Publicly traded growth stocks often command premium valuations when they sustain 15%+ earnings CAGR over extended periods.

CAGR Benchmarks for Different Asset Classes

Historical CAGR by asset class (long-term US data): Large-cap US stocks (S&P 500): approximately 10% nominal, 7% real. Small-cap stocks: approximately 12% nominal. Long-term government bonds: approximately 5%. Corporate bonds: approximately 6%. Gold: approximately 7% since 1971. Real estate (national residential): approximately 3.5%. Cash/T-bills: approximately 3%. Inflation: approximately 3.2%. Any investment consistently delivering above its asset class CAGR benchmark is outperforming. Any investment consistently below is underperforming relative to what a simple index fund in that category would have achieved.

Limitations of CAGR as a Metric

CAGR hides the path between start and end points. Two investments with identical 8% CAGR over 10 years could have very different experiences: one grew steadily while the other crashed 50% in year three and recovered by year ten. The investor in the volatile path may have panic-sold during the crash, never capturing the recovery. CAGR also ignores cash flows during the holding period (additional investments or withdrawals). For portfolios with ongoing contributions or distributions, IRR (Internal Rate of Return) provides a more accurate measure. CAGR is most useful for evaluating lump-sum investments held without additions or withdrawals.

Projecting Future Values Using CAGR

Once you establish a CAGR, you can project future values: Future Value = Present Value x (1 + CAGR)^Years. A portfolio currently worth $150,000 growing at 8% CAGR: 5 years = $220,399. 10 years = $323,839. 15 years = $475,922. 20 years = $699,572. These projections assume the historical rate continues, which is never guaranteed. Using a range of CAGR assumptions (optimistic, baseline, conservative) produces a more realistic planning framework than any single projection. Financial plans built on a single growth rate assumption carry hidden risk if actual returns differ.

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