Compound annual growth rate calculator

Our compound annual growth rate (CAGR) calculator helps you measure an investment’s annual growth rate over a specified period.

Page written by Ian Hawkins. Last reviewed on June 25, 2024. Next review due July 1, 2025.

This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.

Your results

Total balance

Total principal

Compound interest

Get a quote

What is CAGR?

CAGR is a financial metric used to measure the annualised growth rate of an investment or business over a specified period, typically longer than one year.

CAGR smoothens out fluctuations in growth rates and provides a single, consistent measure of growth over time and is often used to compare the performance of investments or businesses, especially when analysing returns or revenue growth over multiple years. It allows investors and analysts to evaluate the effectiveness of an investment strategy or the success of a business in generating consistent growth over time.

How to calculate CAGR

To calculate the compound annual growth rate (CAGR), follow these steps:

Find the beginning and ending values: Determine the initial value of your investment or asset (beginning value) and its final value (ending value) after a specific period.
Calculate the total return: Subtract the beginning value from the ending value to find the total return or total growth of the investment.
Total Return = Ending Value – Beginning Value
Determine the number of periods: Identify the number of periods (usually years) over which the investment grew. For example, if you’re analyzing a 5-year investment, there are 5 periods.
Calculate the CAGR: Use the formula:
CAGR = (Ending Value / Beginning Value)^(1 / Number of Periods) – 1
Where:
- Ending Value is the final value of the investment.
- Beginning Value is the initial value of the investment.
- Number of Periods is the total number of periods (years) over which the investment grew.
Convert to percentage: Multiply the result by 100 to express the CAGR as a percentage.

What is a good CAGR percentage?

Determining what a “good” CAGR percentage depends on different factors, including the industry, economic conditions, and specific investment goals. Generally, a higher CAGR percentage indicates stronger growth and may be considered favourable. However, what is considered a good CAGR can vary widely between different types of investments and businesses.

For example, in certain industries or sectors characterised by uncertainties or technological advancements, achieving a consistently high CAGR may be challenging. In contrast, more stable industries may have lower but still satisfactory CAGR percentages.

What are the advantages and disadvantages of CAGR?

The CAGR presents both advantages and disadvantages in financial analysis. Advantages might include:

Simplicity: CAGR provides a single, easy-to-understand measure of growth over a specific period, smoothing out fluctuations in growth rates.
Comparability: It allows for straightforward comparison of growth rates across different investments or businesses.
Reflects compound growth: CAGR takes into account the compounding effect of growth over time, providing a more accurate representation of long-term performance.
Useful for projections: CAGR can be used to project future growth rates based on historical performance, which helps in forecasting and strategic planning.

On the other hand, CAGR aslo has its disadvantages, including:

Ignores variability: CAGR overlooks fluctuations and variability in growth rates within the specified period, potentially ignoring big changes or trends.
Sensitive to time period: The choice of the time period used to calculate CAGR can impact the resulting growth rate, leading to potential misconceptions.
Assumes smooth growth: CAGR assumes a consistent, linear growth rate over the entire period, which may not accurately reflect the actual growth pattern.
Limited context: CAGR provides a high-level summary of growth but may lack the detailed context needed to fully understand the factors driving the growth or to identify underlying trends.