CAGR Calculator
Calculate Compound Annual Growth Rate (CAGR) to analyze investment returns and business growth over multiple years. Perfect for comparing different investments and growth rates.
What is CAGR?
CAGR (Compound Annual Growth Rate) is the average annual growth rate of an investment or business over a specified time period. It represents the constant rate of return that would be required for an investment to grow from its beginning value to its ending value over the given time period.
CAGR smooths out volatility and provides a single growth rate that can be used to compare different investments or business performance over different time periods.
How to Use the CAGR Calculator
- Enter beginning value: Input the starting value of your investment or business metric.
- Enter ending value: Input the final value after the time period.
- Enter number of years: Input the time period in years (can use decimals for partial years).
- Calculate: Click "Calculate CAGR" to see the compound annual growth rate.
Understanding CAGR
Why Use CAGR?
CAGR provides a smoothed annual growth rate that accounts for compounding, making it easier to compare investments or business growth over different time periods.
CAGR vs Average Growth
CAGR accounts for compounding effects, while simple average growth doesn't. CAGR is more accurate for comparing growth rates over time.
Limitations
CAGR assumes steady growth and doesn't reflect volatility or intermediate values. It's a smoothed metric that may not represent actual year-to-year performance.
Common Uses
CAGR is used to compare investment returns, analyze business revenue growth, evaluate portfolio performance, and project future values based on historical growth.
Example Calculation
If an investment grows from £10,000 to £20,000 over 5 years:
CAGR = ((£20,000 / £10,000)^(1/5) - 1) × 100
CAGR = (2^0.2 - 1) × 100
CAGR = 14.87%
This means the investment grew at an average annual rate of 14.87% per year over the 5-year period.
Frequently Asked Questions
What's a good CAGR?
A good CAGR depends on the asset type and risk level. For stocks, 7-10% CAGR is considered good long-term. For businesses, 10-20% CAGR is strong growth. Higher returns typically come with higher risk.
How is CAGR different from annual return?
CAGR is the average annual growth rate over a period, accounting for compounding. Annual return shows year-by-year performance. CAGR smooths out volatility into a single rate.
Can CAGR be negative?
Yes, if the ending value is less than the beginning value, CAGR will be negative, indicating a decline over the time period.
Can I use CAGR to predict future growth?
CAGR is based on historical data and doesn't guarantee future performance. Use it as a guide, but remember that past performance doesn't predict future results, especially in volatile markets.
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