CAGR (Compound Annual Growth Rate) is the constant annual rate at which a value would have needed to grow, compounding each year, to go from its starting value to its ending value over a given number of years.

How is CAGR different from average annual return?

A simple average of yearly returns can be misleading because it ignores compounding and the order of gains and losses. CAGR smooths growth into one consistent annual rate based only on the starting and ending values, which better reflects actual growth over the period.

CAGR Calculator — Compound Annual Growth Rate

How CAGR is calculated

CAGR answers the question: "what single annual growth rate, compounded every year, would take this starting value to this ending value?" It ignores the path taken in between — only the start, end, and elapsed time matter.

CAGR = (ending value ÷ starting value)^(1÷years) − 1

Why CAGR beats a simple average

Averaging yearly percentage returns is a common mistake: a 50% gain followed by a 50% loss looks like a 0% average, but the actual result is a 25% loss (multiply the two growth factors: 1.5 × 0.5 = 0.75). CAGR is calculated from the actual start and end values, so it always reflects the true compounded outcome.

Common uses

Investment performance: comparing the annualized return of a portfolio, stock, or fund over several years.
Business metrics: measuring revenue or user growth rate year over year.
Goal planning: figuring out what growth rate is needed to reach a target value by a certain year.

Frequently asked questions

Does CAGR account for volatility along the way?

No — CAGR is a smoothed figure that only depends on the starting and ending values. Two investments with the same CAGR can have had very different risk profiles and year-to-year swings in between.

Can the ending value be lower than the starting value?

Yes — enter an ending value lower than the starting value to get a negative CAGR, representing an annualized decline rather than growth.