What is CAGR?
CAGR stands for Compound Annual Growth Rate, a metric used to understand the mean annual growth rate of an investment or financial figure over a specified period. Unlike simple growth rates, CAGR factors in the compounding effect, providing a smoother and more realistic view of growth performance year-over-year.
How to use our CAGR Calculator:
CAGR calculator is straightforward. Simply input the initial value, the final value, and the number of years between them. View your results instantly.
Adjust inflation to evaluate the real value of your investment.
How to calculate CAGR (example)
Say $10,000 grows to $18,000 in 5 years. Divide the ending value by the beginning value, raise it to the power of 1 ÷ years, and subtract 1:
CAGR = (18000 / 10000)1/5 − 1 = 1.80.2 − 1 ≈ 12.47% per year
So the investment grew as if it rose about 12.47% every year, even though the real year-to-year returns were almost certainly uneven.
What does a 12% CAGR mean?
A 12% CAGR means the investment grew as if it rose 12% every single year, compounding — even if the real yearly returns were uneven (for example +30%, −5%, +12%…). It is the single constant rate that links the start value to the end value over the period.
In other words, CAGR smooths out the bumps. It does not claim the investment actually returned 12% each year; it tells you the steady rate that would have produced the same final result.
CAGR vs average annual return vs absolute return
A simple average of yearly returns overstates growth because it ignores compounding and volatility. Absolute return ignores time entirely — it just tells you the total gain. CAGR is the accurate annualized figure, which is why it is the best single number for comparing investments over time.
| Measure | Accounts for time? | Accounts for compounding? | What it tells you |
|---|---|---|---|
| CAGR | Yes | Yes | The accurate annualized growth rate |
| Average annual return | Yes | No | Overstates growth — ignores compounding & volatility |
| Absolute return | No | No | Total gain over the whole period, ignoring time |
Reverse CAGR
Reverse CAGR flips the question around: given a starting value and a target growth rate, what future value will you reach? Rearrange the formula to solve for the future value:
FV = PV × (1 + CAGR)n
where PV = present (starting) value, CAGR = the target annual rate and n = number of years.
For example, $10,000 at a 12% target CAGR for 5 years reaches $10,000 × (1.12)5 ≈ $17,623.
CAGR in Excel
You can calculate CAGR in Excel or Google Sheets three equivalent ways. With the future value (FV), present value (PV) and number of years (n) in cells, any of these returns the same result:
- =(FV/PV)^(1/n)-1
- =RRI(n, PV, FV)
- =POWER(FV/PV, 1/n)-1
Format the result cell as a percentage to read the CAGR directly.
About CAGR calculator
Use this calculator to project what your current investment will grow to over a specified period, based on a compound annual growth rate (CAGR) and if you know the CAGR you can find the final investment value using Final value/Future value calculator. If you're looking to work backwards—to find how much you'd need to invest today to reach a future goal—see our Reverse CAGR calculator
Note on “Reverse CAGR” Terminology
Some sites mislabel a future-value calculator as a “reverse CAGR calculator.” In reality, “reverse CAGR” refers to solving for Initial value when Future value, CAGR, and time are known—the calculator dedicated to that purpose is on our Initial Investment Calculator.
FAQs
1. How to calculate CAGR?
- Final Value - value of the investment at the end of the period.
- Initial Value - value of the investment at the initially of the period.
- N - total number of years (can be fractional)
2. Practical use of CAGR.
CAGR is used to evaluate and compare the historical growth rates of different investment opportunities, such as stocks, mutual funds, retirement portfolios, growth of a product's sales over time, inflation and many more.
- Comparing Investments - Use CAGR to compare the performance of different investments (stocks, mutual funds, real estate) over the same or different time horizons.
- Evaluating Performance - Assess the historical growth of a business or a specific asset.
- Forecasting - Use historical CAGR as a basis for projecting future growth scenarios.
Frequently Asked Questions
References & methodology
CAGR is computed with the standard equation CAGR = (Ending Value ÷ Beginning Value)1/n − 1 and cross-checked against the sources below. This page is for education only and is not financial advice; consult a qualified advisor before making investment decisions.