CAGR: compound annual growth rate
CAGR smooths bumpy yearly returns into one steady rate that compounds to same endpoint. Fairly compare a 3-year startup vs 10-year index.
TL;DR
- Growth factor = Ending/Beginning
- Formulas: CAGR % = (Ending/Beginning)^(1/years)-1 ×100
- 10k→14.5k 5y
How it works
Growth factor = Ending/Beginning. Raise to 1/years, minus 1 → yearly rate. Total growth = (Ending-Beginning)/Beginning ×100.
The math
10k→14.5k 5y factor 1.45 ^0.2 ≈1.077 →7.7% per year. Total 45% is not 9% yearly.
Geometric mean, not arithmetic. Needs positive beginning.
Examples
10k→14.5k 5y
- Total 45%
- CAGR 7.7%
120k→200k 3y
- CAGR 18.6%
When to use it
✦ Investments
Portfolio vs benchmark.
✦ Business
Revenue growth pace.
⚠ Common mistakes
- Using total as yearly
- Zero/negative start breaks formula
FAQ (6)
CAGR vs average growth?
CAGR is geometric, it compounds. Simple average ignores compounding and overstates.
Can CAGR be negative?
Yes, if ending < beginning, CAGR is negative — you shrank per year.
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Sources & References
⚠ Financial Disclaimer
This tool provides estimates for informational purposes only and does not constitute financial, tax, or legal advice. Results may vary based on local regulations, rates, and individual circumstances. Always consult a qualified professional before making financial decisions.