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CAGR — compound annual growth rate — answers a deceptively hard question: at what steady yearly rate did an investment grow from its start value to its end value? It smooths out the bumps of a volatile journey into a single, comparable annual figure, which is why it's the standard way to compare investments, funds and business metrics over time.
Enter the start value, end value and number of years, and the CAGR plus total growth appear at once.
How is it calculated?
Formula
CAGR = (end value ÷ start value)^(1 ÷ years) − 1. It finds the constant annual rate that, compounded over the period, turns the start into the end. Growing from 10,000 to 20,000 over 5 years is a CAGR of (2)^(1/5) − 1 ≈ 14.87% — not 20% a year.
Why not just average the years?
Because growth compounds. A simple average of yearly returns overstates the real result when returns vary. CAGR accounts for compounding and ignores the path taken — whether the value rose smoothly or swung wildly, only the start and end matter. That makes it fair for comparison but blind to volatility (two investments with the same CAGR can have very different risk).
Total growth vs CAGR
- Total growth is the overall change: 10,000 to 20,000 is +100%.
- CAGR is the annualized version of that: ≈14.87% per year.
The tool shows both, so you see the headline gain and the yearly rate behind it.
Where it helps
- Comparing the historical return of funds, stocks or portfolios
- Measuring revenue or user growth over several years
- Turning a multi-year result into an annual rate for planning
For projecting a future value from a rate, a compound interest calculator runs it forward; for the inflation-adjusted rate, a real-return calculator.
Worked example
An investment grows from 10,000 to 20,000 over 5 years — a total growth of 100%. It's tempting to call that "20% a year" (100 ÷ 5), but that ignores compounding. The CAGR is (20,000 ÷ 10,000)^(1/5) − 1 = 2^0.2 − 1 ≈ 14.87% per year. Check it: 10,000 growing at 14.87% compounded for 5 years reaches 20,000. The gap between the naive 20% and the true 14.87% is exactly the compounding effect — and why CAGR, not a simple average, is the honest growth rate.
FAQ
How is CAGR calculated?+
CAGR = (end value ÷ start value)^(1 ÷ years) − 1. For 10,000 to 20,000 over 5 years it is 2^0.2 − 1 ≈ 14.87% per year. Just enter the two values and the term.
Why isn't CAGR just the total growth divided by years?+
Because growth compounds. Dividing 100% by 5 gives 20%, but 20% compounded for 5 years would far exceed the actual result. CAGR is the true constant rate that produces the end value.
What is the difference between CAGR and total growth?+
Total growth is the overall change (10,000 to 20,000 is +100%); CAGR is the annualized version of that (≈14.87% per year). The tool shows both.
Does CAGR account for volatility?+
No — it only uses the start and end values, ignoring the path between. Two investments with the same CAGR can have very different risk, so read it alongside a measure of volatility.
Can CAGR be negative?+
Yes — if the end value is below the start value, CAGR is negative, showing the average annual decline. The tool handles losses as well as gains.
How do I project a future value from a CAGR?+
Apply the rate forward with a compound interest calculator: start value × (1 + CAGR)^years. To adjust for inflation, use a real-return calculator.