Transparent method
The formula
Worked example
Example inputs
How to interpret the result
CAGR smooths a multi-year journey into a single, steady-sounding annual rate, and that smoothing erases the actual path taken to get there. An investment that fell sharply then recovered and one that grew steadily the entire time can post the identical CAGR over the same period, despite a completely different ride for anyone actually holding it.
Before you rely on it
What to check
Look at the year-by-year path behind a CAGR figure, not just the smoothed rate, especially before assuming a similar path will repeat going forward.
The common error
Where people go wrong with CAGR calculator
Reading CAGR as a description of how the investment actually behaved year to year. It only describes the beginning and ending values: a volatile ride and a steady one can average to the identical CAGR.
Sensitivity evidence
How beginning value changes the compound annual growth rate
| Beginning value | Compound annual growth rate | Total return |
|---|---|---|
| $8,000 | 14.5% | 125.0% |
| $9,000 | 12.2% | 100.0% |
| $10,000worked example | 10.3% | 80.0% |
| $11,000 | 8.6% | 63.6% |
| $12,000 | 7.0% | 50.0% |
Every input, tested
Which input moves the compound annual growth rate most
| Input | Tested from | To | Compound annual growth rate at each end | Swing |
|---|---|---|---|---|
| Holding period | 4.0 years | 8.0 years | 15.8% to 7.6% | 8.2% (80%) |
| Ending value | $16,200 | $19,800 | 8.4% to 12.1% | 3.7% (36%) |
| Beginning value | $9,000 | $11,000 | 12.2% to 8.6% | 3.7% (36%) |
Two variables at once
Compound annual growth rate by beginning value and ending value
| Beginning value \ Ending value | $14,400 | $18,000 | $21,600 |
|---|---|---|---|
| $8,000 | 10.3% | 14.5% | 18.0% |
| $9,000 | 8.1% | 12.2% | 15.7% |
| $10,000 | 6.3% | 10.3% | 13.7% |
| $11,000 | 4.6% | 8.6% | 11.9% |
| $12,000 | 3.1% | 7.0% | 10.3% |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Beginning value | $10,000 |
| Ending value | $18,000 |
| Holding period | 6.0 years |
| Compound annual growth rate | 10.3% |
| Total return | 80.0% |
Where the inputs come from
Beginning value and ending value should be measured at the same point in the year, and both should include reinvested income if you want a total return. The holding period is in years and can be fractional, such as 2.5. If you added or withdrew money along the way, the beginning and ending values will mislead and CAGR is the wrong tool. It works cleanly for a single investment left alone, a company's revenue, or an index level.
When the result stops applying
CAGR hides volatility. Two investments with the same CAGR can have very different worst years, and the number says nothing about the risk you took. It also depends heavily on the start and end dates; choosing a low starting point flatters the result. It is not a forecast, and past CAGR does not predict the next period's growth.
What to compare it with
For a portfolio with deposits and withdrawals, use the money-weighted return or XIRR pages instead. Compare CAGR with the arithmetic average on the average return calculator to see the drag from volatility. The annualized return and time-weighted return pages use the same formula and suit performance reporting.
People also ask
Frequently asked questions
What is the difference between CAGR and average return?
The average return adds annual returns and divides, while CAGR is the constant rate that reproduces the ending value. CAGR is lower when returns swing, because losses hurt more than equal gains help.
Can CAGR be negative?
Yes. If the ending value is below the beginning value, CAGR is negative, meaning the investment shrank at that steady annual rate over the period.
Can I use CAGR for business revenue?
Yes. It is widely used for revenue, users and earnings, and it shows the steady growth rate between two points without the noise of individual years.