CAGR Calculator
Calculate the Compound Annual Growth Rate of an investment over any time period.
Enter Details
CAGR
12.47%
Total Growth
80.0%
Year-by-Year Growth
| Year | Value | Growth |
|---|---|---|
| Year 1 | £11,247 | +12.5% |
| Year 2 | £12,651 | +26.5% |
| Year 3 | £14,229 | +42.3% |
| Year 4 | £16,004 | +60.0% |
| Year 5 | £18,000 | +80.0% |
What Is CAGR?
Compound Annual Growth Rate (CAGR) is a widely used financial metric that measures the mean annual growth rate of an investment over a specified time period, assuming the profits are reinvested at the end of each year. It is one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.
The CAGR formula is: CAGR = (Ending Value / Beginning Value)^(1/Years) − 1. This smooths out the volatility of year-to-year returns and gives you a single, comparable growth rate.
CAGR is particularly useful for comparing the performance of different investments over the same period, or the same investment over different time periods. For example, if a stock portfolio grew from £10,000 to £18,000 over five years, the CAGR would be approximately 12.5% per year — even if the actual annual returns varied significantly.
Investors, analysts, and business managers use CAGR to evaluate company revenue growth, market size growth, and portfolio performance. It is a cleaner metric than simple average annual return because it accounts for the compounding effect.
Frequently Asked Questions
What is a good CAGR?
It depends on the asset class. For stock market investments, a CAGR of 8–12% is considered good. For a business, 15–25% is strong growth. Anything above 25% is exceptional but harder to sustain.
What are the limitations of CAGR?
CAGR assumes steady growth and ignores volatility. An investment could have very uneven returns year-to-year but still show a high CAGR. It also does not account for investment risk.
Can CAGR be negative?
Yes. If the ending value is lower than the starting value, CAGR will be negative, indicating a loss in value over the period.
How is CAGR different from average annual return?
Average annual return simply averages the yearly returns. CAGR uses the geometric mean, which accounts for compounding and gives a more accurate picture of actual investment growth.