CAGR Calculator (Compound Annual Growth Rate)
Calculate the smoothed annualized growth rate of your investments, business revenue, or portfolio performance
Enter the starting amount of your investment or business value
Enter the current or expected future value of your investment
Select the time period between initial and final values
Compound Annual Growth Rate
21.48%
Your investment grew at
21.48% annually
Understanding CAGR in Depth
The Compound Annual Growth Rate (CAGR) is one of the most accurate ways to calculate and determine returns for investments that can rise or fall in value over time. Unlike volatile annual returns that may fluctuate wildly, CAGR provides a smoothed annual growth rate that describes the rate at which an investment would have grown if it grew at a steady rate.
Why CAGR Matters for Investors
CAGR is particularly useful when comparing investments with different volatility patterns or time horizons. It helps investors:
- Compare performance of different investments over the same time period
- Evaluate mutual funds or stocks against benchmarks
- Assess business growth metrics like revenue or customer base
- Project future values based on historical growth rates
- Make informed decisions between competing investment opportunities
CAGR Formula Explained
CAGR = (Ending Value / Beginning Value)1/n - 1
Where:
Ending Value = Final amount of investment
Beginning Value = Initial investment amount
n = Number of compounding periods (years)
Real-World Applications of CAGR
Investment Analysis
Compare stocks, mutual funds, or ETFs that have different volatility patterns but similar CAGRs over 5-10 year periods.
Business Growth
Track revenue, customer acquisition, or market share growth year-over-year to assess business health.
Portfolio Management
Evaluate whether your portfolio is meeting long-term growth targets based on historical CAGR.
Retirement Planning
Project future account values based on assumed CAGR for retirement planning purposes.
Limitations of CAGR
While extremely useful, CAGR has some important limitations investors should understand:
- Doesn't reflect risk or volatility - Two investments with same CAGR may have very different risk profiles
- Assumes smooth growth - Real investments rarely grow at exactly the same rate each year
- Sensitive to time period - Changing start/end dates can significantly alter CAGR
- No cash flow consideration - Doesn't account for additional contributions or withdrawals
Advanced CAGR Calculations
CAGR vs. Absolute Returns
| Metric | Description | When to Use |
|---|---|---|
| CAGR | Annualized growth rate smoothing volatility | Comparing investments over same period |
| Absolute Return | Total percentage gain/loss over entire period | Assessing total profit/loss |
CAGR vs. Annualized Return
While often used interchangeably, there are subtle differences:
- CAGR assumes reinvestment of profits and smooth compounding
- Annualized Return may account for cash flows and irregular periods
- CAGR is best for single lump-sum investments with no additions/withdrawals
Calculating CAGR for Multiple Periods
For investments spanning multiple periods with different growth rates:
Overall CAGR = [(1 + CAGR1) × (1 + CAGR2) × ... × (1 + CAGRn)]1/n - 1
Frequently Asked Questions
Is CAGR the same as average annual return?
No, CAGR accounts for compounding while simple average return doesn't. For example, a 50% gain followed by a 50% loss results in a -25% overall return (not 0%), which CAGR correctly shows.
How does volatility affect CAGR calculations?
Volatility doesn't directly affect CAGR since it's based only on beginning and ending values. However, two investments with same CAGR may have very different risk profiles - one growing steadily, the other with large swings.
Can CAGR be negative?
Yes, negative CAGR indicates the investment lost value over the period. For example, if ₹100 becomes ₹80 over 2 years, the CAGR would be -10.56% per year.
How accurate are CAGR projections for future growth?
Past CAGR doesn't guarantee future results. Market conditions, economic factors, and business fundamentals can change. Use historical CAGR as one input among many when forecasting.
What's a good CAGR for investments?
This depends on asset class and risk tolerance:
- Savings accounts: 3-6%
- Bonds: 4-8%
- Stocks: 8-12% long-term
- Venture capital: 15-30%
Professional Applications of CAGR
Financial Analysis
- Compare company revenue growth across industries
- Analyze same-store sales growth for retailers
- Evaluate customer acquisition costs over time
- Assess marketing campaign effectiveness
Investment Banking
- Value companies using DCF models
- Project future cash flows
- Analyze comparable company growth rates
- Prepare investment memorandums
Portfolio Management
- Benchmark portfolio performance
- Evaluate fund manager track records
- Rebalance asset allocations
- Set long-term return expectations
Business Strategy
- Set realistic growth targets
- Evaluate market expansion opportunities
- Assess product line performance
- Prepare investor presentations
Disclaimer:
This CAGR calculator is for informational purposes only. Past performance is not indicative of future results. Investment decisions should be based on your specific financial situation, objectives, and risk tolerance. Consider consulting with a qualified financial advisor before making investment decisions. The calculator results are estimates only and actual returns may vary significantly due to market conditions and other factors.