Finance
CAGR Calculator
Compound annual growth rate turns an uneven change in value into a single smoothed annual percentage. Enter a starting value, an ending value and the number of years to compare investments on equal terms.
How to use this calculator
- Enter the value at the start of the period.
- Enter the value at the end of the period.
- Enter the duration in years; decimals are allowed.
Formula
CAGR = ((Final value / Initial value)^(1/t) − 1) × 100
- Final value
- value at the end of the period
- Initial value
- value at the start
- t
- number of years
Worked example
An investment grows from ₹1,00,000 to ₹2,00,000 in 5 years.
- Ratio2,00,000 ÷ 1,00,000 = 2
- Annualised2^(1/5) = 1.1487
- CAGR(1.1487 − 1) × 100
The CAGR is about 14.87% a year, while the absolute return is 100%.
What CAGR tells you, and what it hides
CAGR answers one question: at what constant annual rate would this investment have grown to reach the final value? It is useful because it makes different investments over different periods directly comparable.
What it hides is the path. An investment that fell 40% and then recovered can show the same CAGR as one that rose steadily, even though the experience of holding them was completely different. Always look at CAGR alongside some measure of volatility.
CAGR compared with absolute return
Absolute return is simply the total percentage change, ignoring time. Doubling your money is a 100% absolute return whether it took three years or thirty. CAGR divides that growth across the years, which is why it is the more honest number when comparing holdings you have owned for different lengths of time.
Things to keep in mind
- CAGR assumes a single investment held for the whole period. For regular monthly investments, XIRR is the appropriate measure instead.
- Dividends and payouts are only included if you add them to the final value.
Frequently asked questions
What is the difference between CAGR and XIRR?
CAGR works for one investment made at the start and held to the end. XIRR handles multiple cash flows on different dates, which is what a SIP or a portfolio with additions and withdrawals looks like.
Can CAGR be negative?
Yes. If the final value is lower than the initial value, the CAGR is negative, showing the average annual rate of decline.
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