About CAGR calculator
The Compound Annual Growth Rate (CAGR) represents the average annual rate of return for an investment over a certain period, assuming the profits are reinvested each year. It shows how an initial value grows to a final value if the growth were steady and compounded annually. This calculator helps you find that rate quickly and accurately, giving you a clear picture of consistent growth over time.
How CAGR Is Calculated
The standard formula for CAGR is:
CAGR = (Final Value / Beginning Value)^(1 / Number of Years) − 1
Here:
- ● Beginning Value (BV) – The initial investment amount or starting figure.
- ● Final Value (FV) – The value at the end of the investment period.
- ● Number of Years (n) – The total time the investment was held.
CAGR expresses the growth rate as if the investment had grown at a fixed rate every year, even if actual growth fluctuated along the way.
For example, if your investment increased from $1,000 to $10,000 in 5 years, then:
CAGR = (10,000 / 1,000)^(1/5) − 1 = 0.5849 → 58.49% per year
This means the investment effectively grew at an average annual compounded rate of 58.49%.
Nominal vs Real CAGR (Inflation-Adjusted Growth)
A nominal CAGR shows the rate of return before considering inflation. However, inflation reduces the purchasing power of money, so your “real” growth may be lower.
To find the inflation-adjusted (real) CAGR, you can subtract the inflation rate from the nominal CAGR approximately, or use the precise version:
Real CAGR = [(1 + Nominal CAGR) / (1 + Inflation Rate)] − 1
This gives a clearer view of how much your wealth has actually grown in real terms after accounting for price increases over the years.
Why CAGR Matters
CAGR is widely used in finance, investing, and business performance analysis because it smooths out irregular returns. It’s particularly useful for:
- ● Comparing returns from different investments or portfolios
- ● Analyzing business growth trends in revenue, profit, or users
- ● Measuring performance of mutual funds, stocks, or crypto assets
- ● Evaluating project or product growth over time
When Not to Rely Solely on CAGR
Although CAGR is powerful, it can sometimes give a false sense of smoothness because it hides volatility. Two investments may show the same CAGR but have very different year-to-year returns or risk levels.
Avoid relying only on CAGR if:
- ● The investment had large fluctuations or losses in between.
- ● There are multiple cash inflows or outflows (use IRR instead).
- ● You need to measure short-term or irregular growth.
In such cases, use CAGR alongside other performance metrics like annualized return, volatility, or internal rate of return (IRR).
How This Calculator Helps
This tool doesn’t just compute CAGR, it can also reverse the calculation. You can find:
- ● The Final Value given the starting amount, CAGR, and time.
- ● The Beginning Value needed to reach a certain goal.
- ● The Number of Years required to grow an amount at a given CAGR.
It also provides an inflation adjustment feature and a yearly breakdown showing how your value increases each year.
Doubling Time
A handy shortcut derived from CAGR is the Rule of 72. It estimates how long it takes for your investment to double in value:
Doubling Time (years) = 72 / CAGR
For instance, if your CAGR is 12%, your investment doubles roughly every 6 years (72 ÷ 12 = 6). It’s not exact but gives a quick, intuitive sense of how compounding works.
Practical Examples
Example 1: Investment Growth
You invested $5,000 in a mutual fund and it grew to $8,000 in 4 years.
CAGR = (8,000 / 5,000)^(1/4) − 1 = 12.98% per year.
Example 2: Business Revenue Growth
A company’s annual revenue increased from ₹50 lakh to ₹1.2 crore in 6 years.
CAGR = (1.2 / 0.5)^(1/6) − 1 = 15.8% annual growth.
Example 3: Real Growth after Inflation
If your investment CAGR is 10% and average inflation is 4%,
Real CAGR = (1.10 / 1.04) − 1 = 5.77% real annual growth.
Common Mistakes When Using CAGR
- 1. Mixing time units – Make sure the period is expressed in years when calculating annual CAGR.
- 2. Forgetting compounding – CAGR assumes reinvestment of returns. If profits weren’t reinvested, actual growth may differ.
- 3. Ignoring volatility – CAGR smooths out ups and downs; don’t assume stable yearly performance.
- 4. Rounding errors – Round only at the end of your calculation to maintain accuracy.
CAGR vs Other Growth Metrics
Metric | Description | Best Used For |
|---|---|---|
| CAGR | Measures constant annualized growth between start and end values | Long-term investments or revenue growth |
| Simple Growth Rate | One-time percentage change without compounding | Short-term snapshots |
| IRR (Internal Rate of Return) | Annualized return accounting for multiple cashflows | Complex investments or projects |
| Annual Return | Year-by-year performance data | Assessing volatility or yearly consistency |
FAQs
Q1. What does CAGR tell me?
A: It tells you the rate of return your investment would have earned each year if it grew at a steady compounded rate.
Q2. Can CAGR be negative?
A: Yes. A negative CAGR means the investment declined in value over time.
Q3. Is CAGR the same as average return?
A: No. The average return is a simple arithmetic mean, while CAGR is a geometric mean that includes compounding effects.
Q4. Does CAGR account for inflation?
A: Not by default. The calculator includes an option to adjust for inflation and show real growth.
Q5. Is a higher CAGR always better?
A: Not necessarily. A higher CAGR means faster growth, but it doesn’t reflect the risk or volatility behind the numbers.
Sources: Omni Calculator, CalculatorSoup, cagrcalculator.net, ClearTax, TheCalculatorSite.