CAGR Calculator — Compound Annual Growth Rate
The annualised rate that turns a starting value into an ending value, making returns comparable across different holding periods.
CAGR Calculator
CAGR
14.87%
Absolute Return
100.00%
Total Gain
5,000
Formula
CAGR = (10,000 / 5,000)^(1/5) − 1 = 14.87%
The CAGR formula
CAGR is the constant annual rate that would produce the observed result — a geometric mean, not an arithmetic one.
CAGR = (ending ÷ beginning)^(1 ÷ years) − 1
- ending
- Value at the end of the period
- beginning
- Value at the start
- years
- Length of the period, which may be fractional
Worked example
- Beginning value
- 100,000
- Ending value
- 250,000
- Period
- 7 years
- Ratio
- 2.5
- Exponent
- 1/7 = 0.142857
CAGR ≈ 13.95% per year
Why the arithmetic average overstates returns
Take two years: +50% then −50%. The arithmetic average is 0%, which suggests you broke even. You did not — 100 becomes 150, then 75. You lost 25%.
CAGR gives the correct answer: (75/100)^(1/2) − 1 = −13.4% per year. Applied twice to 100, that produces 75.
The gap between the arithmetic mean and CAGR grows with volatility, and it is always in the same direction — the arithmetic mean is never lower. This is why a fund can advertise an impressive "average annual return" while investors' actual holdings grew by considerably less, and why CAGR is the figure to ask for.
The same asymmetry explains why drawdowns are so costly: a 50% loss needs a 100% gain to recover, and an 80% loss needs 400%. Losses and gains of equal percentage are not equal in effect.
About
The CAGR Calculator computes the Compound Annual Growth Rate — the steady annual rate at which an investment would have grown from its initial value to its final value over a given number of years. CAGR smooths out volatility and gives a single comparable growth figure for investments, portfolios, or business metrics. The reverse CAGR mode lets you enter an expected CAGR and starting value to project where your investment will be at any future date.
How to use
- 1 To find CAGR: enter the initial value, final value, and number of years.
- 2 The CAGR result shows the equivalent steady annual growth rate.
- 3 To project a future value: switch to Reverse CAGR mode, enter starting value, expected CAGR, and years.
- 4 The year-by-year table shows the value at the end of each year.
- What is CAGR and why is it useful?
- CAGR (Compound Annual Growth Rate) is the single constant annual growth rate that would take an investment from its starting value to its ending value over a given period. It is useful because real investments grow unevenly year to year — CAGR smooths out that volatility into one comparable number. For example, if a fund grew from ₹1 lakh to ₹2.5 lakh in 8 years, its CAGR is about 12.1%.
- What is the CAGR formula?
- CAGR = (Final Value ÷ Initial Value)^(1 ÷ Years) − 1. For example, an investment that grew from $10,000 to $18,000 in 5 years: CAGR = (18,000 ÷ 10,000)^(1÷5) − 1 = 1.8^0.2 − 1 ≈ 12.47% per year. The result means the investment effectively grew at 12.47% per year on a compounded basis.
- What is the difference between CAGR and absolute return?
- Absolute return is simply the total percentage gain without accounting for time. A 50% absolute return looks great — but if it took 20 years, that is a CAGR of only 2% per year. CAGR normalises for time, making it the correct metric for comparing investments held for different periods. Always compare investments using CAGR rather than absolute return.
In-depth guides
More in FinTech Tools
See all fintech tools.