The steady annual growth rate that takes a value from start to end over a period.

How do I calculate CAGR?

Divide the end value by the start, raise to 1/years, and subtract 1.

Is CAGR the same as average return?

No; CAGR compounds, so it's usually lower than a simple average of yearly returns.

What Is CAGR (and How to Use It)?

Published 7/25/2025 · 3 min read · Finance calculators

Camille Laurent — Finance writer at Allin

Tax · Personal finance

Checked against 2 sources

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In short

CAGR (compound annual growth rate) is the single steady yearly rate that would take an investment from its start value to its end value over a period. It smooths the ups and downs into one number. If $1,000 grows to $2,000 in 5 years, the CAGR is (2000/1000)^(1/5) − 1 ≈ 14.9% a year. It lets you compare investments of different lengths fairly.

CAGR turns an investment's whole journey into one steady yearly rate. Here's what it means, the formula, why it's useful for comparing, and what it hides.

What CAGR is

CAGR answers a simple question: if an investment's messy year-by-year returns were replaced by one constant rate, what would that rate be? It's the smooth, imaginary annual growth that connects where you started to where you ended up, as if the value climbed by the same percentage every year. Real returns are never that tidy — some years up, some down — but CAGR distils the whole ride into a single 'per year' figure you can actually reason about.

The formula

The formula is: (end value ÷ start value) raised to the power of 1 divided by the number of years, minus 1. Say $1,000 grows to $2,000 over 5 years. The ratio is 2, the power is 1/5, so 2^(1/5) ≈ 1.149, and subtracting 1 gives 0.149, or about 14.9% a year. That fractional exponent is the compounding at work — it finds the yearly rate that, multiplied on itself five times, doubles the money.

Why it's useful

CAGR's real value is comparison. Two investments with different start values, end values and time spans can't be judged side by side on their raw growth — but reduced to a CAGR, each becomes one honest annual rate you can line up directly. Was 60% over four years better than 40% over two? Turn both into CAGR and the answer is clear. It's the standard yardstick for reporting fund performance and business growth precisely because it makes unlike things comparable.

What it hides

The smoothing that makes CAGR useful also hides things. It says nothing about the path: a serene 10% CAGR could conceal a terrifying crash and recovery in between, which matters hugely if you'd have needed the money at the bottom. It also ignores money paid in or taken out along the way, and assumes nothing about the future — a strong past CAGR is not a promise. Treat it as a clean summary of what happened, not a guarantee of what comes next.

Worked with our own calculator

CAGR calculator

Given

Start value: $20,000.00
End value: $40,000.00
Years: 10

Result

CAGR: 7.18%

These figures are produced by the calculator below, not typed in by hand — they are recomputed whenever the tool changes.

Run it on your own figures →

Frequently asked questions

What is CAGR?: The steady annual growth rate that takes a value from start to end over a period.
How do I calculate CAGR?: Divide the end value by the start, raise to 1/years, and subtract 1.
Is CAGR the same as average return?: No; CAGR compounds, so it's usually lower than a simple average of yearly returns.

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This is general information, not financial advice. Past performance, however measured, does not guarantee future results.

Sources

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