The CAGR calculator measures the compound annual growth rate between a starting value and an ending value over a specified number of years. It tells you the constant annual rate that would connect those two values through compounding—not the return actually earned in each year.
You can use CAGR to compare investment performance or measure growth in revenue, customers, and other positive-valued business metrics. The definition of compound annual growth rate is based on geometric growth rather than a simple arithmetic average.
How to use the CAGR calculator
- Enter the starting value: the investment value or business metric at the beginning of the period.
- Enter the ending value: the corresponding value at the end of the period.
- Enter the elapsed time in years: use the duration between the two measurements, not the number of annual observations.
Keep both values in the same units. For example, use dollars for both—not dollars for one and thousands of dollars for the other. The currency itself does not affect the percentage calculation.
Count the time intervals carefully. From the end of 2020 to the end of 2025 is five years, even though six calendar-year labels appear. For a period measured in months, convert the duration to years: 18 months is 1.5 years.
For a meaningful standard CAGR calculation, the starting value must be greater than zero, the ending value must be nonnegative, and the duration must be greater than zero. CAGR generally is not suitable for metrics that start at zero or cross between positive and negative values.
CAGR formula
The calculator uses this formula to return an annual percentage:
CAGR (%) = [(f / b)1/t − 1] × 100
- b: beginning value
- f: final value
- t: elapsed time in years
First, divide the final value by the beginning value. Then raise that ratio to the power of 1 divided by the number of years. Subtract 1 and multiply by 100 to express the result as a percentage.
In the illustration, Vf and Vb represent the final and beginning values. A formula without the final multiplication by 100 returns a decimal rate: 0.1487 is approximately 14.87%.
Worked example: doubling an investment in five years
Suppose an investment grows from $1,000 to $2,000 over five years, with no additional deposits or withdrawals.
CAGR = [(2,000 / 1,000)1/5 − 1] × 100 ≈ 14.87%
The total gain is 100%, but the compound annual growth rate is approximately 14.87%. A constant annual return of about 14.87%, compounded for five years, would turn $1,000 into $2,000.
This does not mean the investment earned 14.87% every year. The actual annual returns could have varied substantially.
How to interpret your CAGR result
- Positive CAGR: the ending value is higher than the starting value.
- Zero CAGR: the starting and ending values are equal, even if the value fluctuated between them.
- Negative CAGR: the ending value is lower than the starting value.
For example, an investment falling from $10,000 to $8,000 over three years has a CAGR of approximately −7.17%. If a positive starting value falls to zero, the formula returns −100%; this signals a complete loss, not a description of the timing of that loss.
There is no universally “good” CAGR. Evaluate the result against a relevant benchmark over the same dates, considering risk, fees, and the type of investment. An asset-class dashboard from Russell Investments can provide broader comparison context, rather than a single target return for every investment.
Why the time horizon matters
For the same positive total gain, taking longer to achieve it produces a lower CAGR. Here is how the annualized rate changes when $1,000 grows to $2,000:
| Elapsed time | Total growth | CAGR |
|---|---|---|
| 5 years | 100% | 14.87% |
| 10 years | 100% | 7.18% |
| 15 years | 100% | 4.73% |
Annualizing makes different durations easier to compare, but it does not make different market periods equivalent. Short-period annualized results also deserve caution: a strong few months may not be repeatable for a full year.
What CAGR does not tell you
- Volatility and losses along the way: two investments can have the same CAGR but very different annual returns and drawdowns.
- The effect of deposits and withdrawals: adding money can increase an account balance without representing investment growth. A calculation using only the starting and ending balances cannot separate these effects.
- Income paid outside the investment: comparing purchase and sale values alone leaves out dividends or distributions received separately. Use a consistent total-return measure when evaluating performance that includes reinvested income.
- Inflation, taxes, and fees: the calculator does not adjust for these automatically. Its result reflects the values you supply.
- Future performance: historical CAGR summarizes a past period; it does not establish a reliable future growth rate.
CAGR is not the arithmetic average of annual returns
Suppose $1,000 rises 25% to $1,250 in the first year, then falls 20% to $1,000 in the second. The arithmetic average annual return is 2.5%, but CAGR is 0% because the investment ends where it started.
The measures answer different questions: an arithmetic average summarizes the individual yearly returns, while CAGR describes the compounded change over the full period. For more context on compounding and volatility, see this CFA Institute discussion.
Practical ways to use CAGR
- Review investment performance: compare annualized growth over matching dates, using consistent treatment of fees and income. Review risk separately.
- Measure business growth: calculate revenue or customer growth between comparable periods. For annual revenue, compare full-year totals rather than a full year with a partial year.
- Evaluate a growth target: enter today's value, a target ending value, and the available years. The result is the constant annual growth rate needed to reach that target—not a forecast of whether it is achievable.
For business analysis, check what caused the change. Acquisitions, price increases, currency movements, or a change in reporting methods can affect CAGR without indicating equivalent underlying growth. Revenue growth also does not establish profitability.
Related calculators: when to use another measure
- Return on Investment: use ROI to measure total percentage gain or loss relative to investment cost. Unlike CAGR, a basic ROI calculation does not annualize the result.
- IRR calculator: use internal rate of return when an investment has multiple cash flows at regular intervals.
- XIRR calculator: use dated cash flows when contributions, withdrawals, or distributions occur at irregular intervals.
- Future Value calculator: estimate how savings could grow using an assumed rate and regular contributions, rather than calculating a historical rate from two values.
You can also browse the Investing Calculators collection for other investment planning and performance measures.
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