CAGR Formula (Compound Annual Growth Rate)
The CAGR formula calculates the steady annual growth rate of an investment or metric over multiple years.
Learn the formula with examples.
The Formula
CAGR — Compound Annual Growth Rate — tells you the steady annual rate at which a value would have grown to reach its end value from its start value over n years. It smooths out volatile year-to-year fluctuations into a single, comparable number.
Variables
| Symbol | Meaning | Unit |
|---|---|---|
| CAGR | Compound Annual Growth Rate | decimal (multiply by 100 for %) |
| End Value | The final value at the end of the period | $ or any unit |
| Start Value | The initial value at the beginning of the period | $ or any unit |
| n | Number of years in the period | years |
| ^(1/n) | The nth root (inverse of raising to the power n) | — |
Example 1 — Investment Growth
You invested $10,000 in 2019. By 2024 (5 years later) it grew to $16,500. What is the CAGR?
CAGR = (16,500 / 10,000)^(1/5) − 1
CAGR = (1.65)^(0.20) − 1
CAGR = 1.1053 − 1
CAGR = 0.1053 = 10.53% per year
Example 2 — Revenue Growth
A startup had revenue of $500,000 in 2021 and $1,200,000 in 2024 (3 years). What is the revenue CAGR?
CAGR = (1,200,000 / 500,000)^(1/3) − 1
CAGR = (2.4)^(0.333) − 1
CAGR = 1.3389 − 1
CAGR = 0.3389 = 33.89% per year
When to Use It
- Comparing investment performance across different time horizons
- Evaluating a company's historical revenue or earnings growth
- Benchmarking portfolio returns against market indices
- Projecting future values based on a historical growth rate
- Business planning — estimating where a metric will be in future years
Important Notes
- CAGR assumes smooth, consistent growth — real-world returns are rarely this steady.
- It ignores volatility; two investments with the same CAGR can have very different risk profiles.
- For investments with regular contributions (like a 401k), use IRR (Internal Rate of Return) instead.
- CAGR is always expressed as a percentage when presenting results.