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What Is CAGR? Compound Annual Growth Rate Explained
CAGR, or compound annual growth rate, is the constant yearly growth rate that would turn a beginning value into an ending value over a specified number of years.
Also called: Compound annual growth rate; Annualized growth rate.
How it works
It summarizes the endpoints as an annual compounded rate. CAGR can describe an investment balance, revenue or sales, but its interpretation depends on what the values represent. For investment performance, the simple endpoint formula assumes no intervening external deposits or withdrawals. Reinvested income must already be included in the ending value to measure total return.
CAGR = (ending value / beginning value)^(1 / years) − 1
Multiply the decimal result by 100 for a percentage. Use a positive beginning value, a nonnegative ending value and a positive elapsed period.
$8,000 becoming $10,648 in three years
Suppose an investment grows from $8,000 to $10,648 with no external cash flows.
- Total growth: $10,648 / $8,000 − 1 = 33.1%.
- Annualize by compounding: (10,648 / 8,000)^(1/3) − 1 = 10%.
- Check: $8,000 × 1.10 × 1.10 × 1.10 = $10,648.
CAGR is 10% per year. Dividing 33.1% by three gives about 11.03%, which does not reproduce the ending value when compounded.
Three full years; no external deposits or withdrawals. Values and any reinvested income are measured consistently.
Try these example inputsCAGR hides the path between the endpoints
A 10% CAGR does not mean the investment gained 10% every year. Very different gains and losses can produce the same endpoints. New contributions can also increase an account balance without representing investment growth; use a cash-flow-aware method such as IRR when appropriate.
Explore with a calculator
- CAGR Calculator
Find CAGR, solve for a beginning or ending value, or use dates.
- Average Return Calculator
Compare arithmetic and geometric return measures for a sequence of returns.
Sources and checks
Definition and example arithmetic checked . Sources explain the concepts; numerical examples use the assumptions stated above.
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