What Is CAGR?

CAGR — compound annual growth rate — is the smoothed annual rate at which a value grows over multiple years, as if it grew steadily every year with compounding. If a $10,000 investment becomes $25,000 over 5 years, the CAGR is about 20.1% — meaning it grew as though it gained 20.1% each year, compounded. CAGR is the standard way to express investment returns, business growth, and any metric measured across time, because it makes different time periods and investments directly comparable.

The CAGR Formula

The power of CAGR is that it accounts for compounding and smooths out volatility. An investment that gains 50% one year and loses 20% the next didn't grow at the simple average of 15% — CAGR reveals the true annualized rate that actually connects the start and end points. This is why CAGR is almost always more honest than a simple average of yearly returns, which systematically overstates growth by ignoring how volatility drags on compounding.

CAGR vs Simple Average Return

• Simple average adds the yearly returns and divides — it ignores compounding and always looks higher
• CAGR gives the constant annual rate that actually produces the end value from the start value
• The gap widens with volatility: +50% then −50% averages 0% but has a CAGR of −13.4% (you'd be down)
• CAGR is what you should quote and compare; simple average flatters performance and misleads
• Neither captures the path — CAGR assumes smooth growth even when reality was bumpy

How to Use This Calculator

Enter the starting value, the ending value, and the number of years over which the growth happened. The calculator returns the CAGR, total growth over the full period, absolute gain, the growth multiple, and — using the Rule of 72 — roughly how long it would take to double at that rate. It works for anything measured over time: investment portfolios, revenue, subscribers, website traffic, or property values.

Worked Example

You invested $10,000 and it's worth $25,000 after 5 years. CAGR = (25,000 ÷ 10,000)^(1/5) − 1 = 1.201 − 1 = 20.1%. Total growth was 150% and the money grew 2.5×. At a 20.1% CAGR, the Rule of 72 says it would double roughly every 3.6 years. Notice the simple average (150% ÷ 5 = 30%/year) is far higher than the true 20.1% CAGR — that gap is exactly the compounding illusion CAGR corrects for.

What's a Good CAGR?

• Stock market: long-run averages are roughly 7–10% annually before inflation — a common benchmark
• Startups / high-growth companies: revenue CAGRs of 30–100%+ in early years, slowing as they scale
• "Good" is relative to risk and benchmark: beating a low-risk savings rate is easy; beating the market consistently is hard
• Always compare CAGR against the right benchmark — an index, inflation, or an alternative investment — not in isolation

Related Growth & Return Tools

For a single-period return, use the ROI calculator; to project future compounding forward, try the compound interest calculator. Applying CAGR to business metrics? Pair it with the churn and LTV tools for revenue growth analysis, and the investment return calculator for portfolio planning.

Frequently Asked Questions