CAGR Calculator (Compound Annual Growth Rate)
A CAGR calculator helps you understand the average annual growth rate of an investment between two points in time. Instead of showing total or absolute returns, it answers a more practical question: “At what steady yearly rate did this investment grow?”
The output is a single percentage — CAGR — which represents the smoothed annual return assuming the investment grew at a constant rate over the entire period. This makes it especially useful for comparing investments held over different durations.
How the Calculation Works
CAGR is calculated by comparing the final value of an investment to its initial value and spreading that growth evenly across the total number of years. It assumes that gains are reinvested and compounded over time, even though real-world returns may fluctuate year to year.
In simple terms, CAGR ignores volatility and focuses only on the starting value, ending value, and time period. This makes it a clean and comparable metric, but also means it does not reflect interim ups and downs.
- Growth is assumed to be compounded
- The growth rate is averaged over the full period
- Intermediate cash flows are ignored
- Taxes, fees, and dividends are not included
Inputs and Options Explained
The calculator requires three values to compute CAGR. Each represents a factual input rather than an assumption about future performance.
- Initial Value — The value of the investment at the beginning of the period. This must be greater than zero.
- Final Value — The value of the investment at the end of the period, after all growth or decline.
- Time Period (Years) — The total duration between the initial and final values, expressed in years.
Examples and Edge Cases
An investment that doubles over ten years may sound impressive, but CAGR reveals the true pace of growth. In this case, the annualized return is much lower than what a short-term gain might suggest.
CAGR can also be negative. If the final value is lower than the initial value, the result represents an average annual decline, which is useful when analyzing underperforming assets.
Who Should Use This Tool
This tool is useful whenever you want to compare growth across different investments, time periods, or asset classes using a single, normalized metric.
- Investors comparing long-term portfolio performance
- Anyone evaluating past returns of stocks or mutual funds
- Users wanting to normalize growth across unequal time spans
Related Concepts
CAGR is often discussed alongside other return metrics, each serving a slightly different purpose.
- Absolute Return — The total percentage gain or loss over a period, without considering time.
- Annual Return — The return for a specific year, which may vary significantly year to year.
- Compounding — The reinvestment of returns so that gains themselves generate further gains.
If you are estimating future investment outcomes rather than analyzing past performance, a Lumpsum Calculator or a SIP Calculator may be more appropriate.