CAGR Calculator
Calculate the Compound Annual Growth Rate of any investment or metric. CAGR tells you the smoothed annual rate of return as if growth happened at a steady pace, making it easy to compare investments with different time horizons.
CAGR (Compound Annual Growth Rate) is one of the most widely used metrics in finance and business. The formula is CAGR = (Ending Value / Beginning Value)^(1/Number of Years) - 1. Unlike simple average returns, CAGR accounts for compounding and gives you the constant rate of return that would take the beginning value to the ending value over the given time period.
CAGR is particularly useful for comparing investments with different time horizons. For example, if Investment A grew from $10,000 to $18,000 in 4 years and Investment B grew from $10,000 to $30,000 in 7 years, the total returns (80% vs 200%) are misleading. CAGR reveals Investment A grew at 15.83% per year while Investment B grew at 16.99% per year, making the comparison meaningful.
It is important to understand that CAGR smooths out volatility. An investment might have had wild swings year to year but still show a steady CAGR. This makes it a useful summary metric but an incomplete picture of risk. Always consider CAGR alongside volatility metrics like standard deviation when evaluating investments.