CAGR Explained: The Steady Growth Rate Behind Uneven Returns
CAGR turns bumpy growth into one clean annual rate. This guide shows how it is calculated and when it is useful.
What is the CAGR Calculator?
This calculator finds the compound annual growth rate, or CAGR, which is the single steady yearly rate that would grow a starting value into an ending value over a set number of years. It uses the formula CAGR = (ending value divided by starting value) raised to the power of 1 divided by years, minus 1. Real growth is rarely steady, so CAGR smooths the ups and downs into one average rate.
How to use it
- Enter the starting value.
- Enter the ending value and the number of years between them.
- Press Calculate to see the compound annual growth rate.
Worked example
Grow from 10,000 to 20,000 over 5 years. The tool gives a CAGR of 14.87%.
What does CAGR actually mean?
CAGR is the constant yearly growth rate that would take a starting value to an ending value over a given number of years, if growth were perfectly smooth. It does not mean growth really was steady each year, only that this rate reproduces the same start and end points. That makes it handy for comparing investments over different periods.
Frequently asked questions
How is CAGR different from a simple average?
A simple average divides total growth by the number of years, which ignores compounding. CAGR accounts for compounding, so it is the steady rate that actually connects the start and end values.
Can CAGR be negative?
Yes, if the ending value is lower than the starting value, the CAGR is negative, showing an average yearly decline over the period.