# 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 July 8, 2024. Next review due April 1, 2025.

\$
.00
5 years

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

Compound annual growth rate

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## What is CAGR?

CAGR, or Compound Annual Growth Rate, is a measure used to calculate the annual growth rate of an investment over a specified period, assuming the investment has grown at a steady rate each year. It provides a smoothed annual growth rate, taking into account the effect of compounding.

## How to calculate CAGR

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

1. 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.

2. 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

3. 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.

4. 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.
5. Convert to percentage: Multiply the result by 100 to express the CAGR as a percentage.

Remember, CAGR helps you understand the average annual growth rate of an investment over a specific period, making it a handy tool for assessing investment performance.

A CAGR calculator is a real game-changer for investors and analysts alike. Here’s how it can be a huge help:

1. Simplifies crunching numbers: Instead of manually crunching numbers and wrestling with formulas, this tool does the heavy lifting. Just plug in the initial and final values, along with the number of years or periods, and voilà — you get the CAGR instantly.

2. Gets the math right: No more worrying about making mistakes in your calculations. It ensures accuracy, especially when you’re dealing with lots of data or numbers that can get a bit overwhelming.

3. Compare and contrast: Want to see how different investments or business metrics stack up? This tool lets you compare their growth rates over the same period, which is key when you’re making decisions about where to put your money.

4. Look ahead: It’s not just about what’s happened; it’s about what’s coming next. By using CAGR, you can get a glimpse into the future — seeing potential returns or predicting how sales might grow.

5. Make smarter choices: Armed with CAGR insights, you can make smarter choices. Whether you’re an investor eyeing new opportunities or a business analyst plotting strategy, this info helps you steer in the right direction.

6. Learn and grow: It’s not just for pros. It’s a great tool for anyone learning about finance and investing. Consider it your crash course in understanding growth rates and how they impact your bottom line.

In a nutshell, a CAGR calculator makes financial analysis less daunting and more decisive. It’s your go-to for making sense of the numbers and making savvy moves with your money.

## Limitations of CAGR

The main drawback of CAGR is that it provides a smoothed rate of growth over a period, which overlooks volatility and suggests that growth was consistent during that time. Investment returns can fluctuate over time, except for bonds held until maturity, deposits, and similar investments.

## FAQs

The concept of a "good" CAGR can vary depending on factors such as investment goals, risk tolerance and market conditions. Generally, a higher CAGR indicates stronger growth and better investment performance.

To forecast future performance using CAGR, first, calculate the CAGR using historical values. Then, apply this growth rate to project future values over the desired period. It's important to note that CAGR assumes constant growth, which may not always be the case.

A 10% CAGR means that an investment or asset has grown at an average annual rate of 10% over a specified period. It indicates consistent growth over time, compounding each year.

A 15% CAGR is generally considered quite good and represents robust growth. It suggests that the investment or asset has grown at an average annual rate of 15% over the period, which is higher than many market benchmarks.

A CAGR of 30% is considered excellent and reflects very strong growth. It indicates that the investment or asset has grown at an average annual rate of 30% over the specified period, outperforming most market averages and benchmarks.

These figures provide insights into the growth rates of investments or assets and can help evaluate performance over time.

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