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Scan for outdated or missing drivers - takes under a minuteDriver Scan →Repair Windows errors before they cause bigger problemsFix Now →Compound annual growth rate (CAGR) is the constant annualized rate that would grow a beginning value into an ending value over a specified number of years. Use it to summarize and compare endpoint growth, not to describe what happened in each year or predict future performance.
Calculate it as (ending value ÷ beginning value) raised to the power of 1 ÷ number of years, then subtract 1. For example, revenue rising from $100 million to $150 million over five years has a CAGR of about 8.45%, though the actual annual growth may have varied.
CAGR formula
CAGR = (EV ÷ BV)^(1 ÷ n) − 1
- EV: ending value
- BV: beginning value
- n: number of compounding periods, normally years for annual CAGR
Multiply the result by 100 to express it as a percentage, or format the result as a percentage in a spreadsheet.
How to calculate CAGR
- Identify the beginning and ending values for the same measure.
- Determine the elapsed period in years. Use elapsed time, not simply the count of calendar-year labels.
- Divide the ending value by the beginning value.
- Raise the ratio to the power of 1 divided by the number of years.
- Subtract 1, then express the result as a percentage if needed.
Worked example
Suppose revenue grows from $100 million to $150 million over five years:
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CAGR = (150 ÷ 100)^(1 ÷ 5) − 1
CAGR = 1.5^0.2 − 1 ≈ 0.08447 = 8.45%
The total increase is 50%, while the CAGR is the equivalent annual compounded rate over five years. It does not mean revenue grew by exactly 8.45% in each year.
What CAGR tells you—and what it does not
CAGR summarizes the rate that links two endpoints under a steady-compounding assumption. It is useful for comparing growth over time, but it hides the intervening path: very different sequences of gains and losses can produce the same CAGR. Microsoft describes CAGR as a smoothed rate of return that treats growth as steady over the measurement period. [c002]
CAGR is a geometric measure, not the arithmetic average of annual percentage changes. For example, an asset that rises 50% and then falls 50% goes from $100 to $150 and then to $75. Its two-period CAGR is about −13.40%, not 0%. NYU Stern explains that arithmetic averages are generally higher than geometric averages when returns vary. [c004]
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Show the beginning value, ending value, measurement period, calculation, and whether relevant cash flows or other adjustments are included. If the path matters, also show annual values or returns, or an appropriate volatility measure.
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- Interim cash flows: Contributions or withdrawals can change an account’s endpoint independently of investment performance. For dated multiple cash flows, IRR or XIRR is generally more appropriate because it accounts for cash-flow timing. Microsoft recommends XIRR for dated cash flows or unevenly spaced dates. [c002]
- Uneven dates: Use actual elapsed time rather than assuming equal annual periods. For a simple pair of values, an annualized expression using elapsed days is (ending value ÷ beginning value)^(365 ÷ days elapsed) − 1. For dated cash-flow series, consider XIRR.
- Unusable values: The standard formula is undefined when the beginning value is zero. Negative beginning or ending values, or a measure that crosses zero, generally do not support a conventional real-valued CAGR interpretation. Explain the absolute changes or use another suitable measure instead.
- Incomparable endpoints: Use the same metric, currency, and comparable price or accounting basis at both endpoints. For example, compare revenue with revenue rather than mixing revenue and profit.
- Different periods: CAGRs from different measurement periods may reflect different market or business conditions. Microsoft cautions users to compare CAGRs over the same investment period. [c002]
Dividends, fees, taxes, inflation, currency movements, stock splits, acquisitions, or changes in shares can also affect what an endpoint comparison represents. State what is included rather than implying the figure captures every aspect of an investor’s experience.
Calculating CAGR in Excel
For beginning and ending values separated by whole annual periods, use:
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=(Ending_Value/Beginning_Value)^(1/Number_of_Years)-1
For the example above, enter =(150/100)^(1/5)-1 and format the result as a percentage. For dated cash flows or dates that are not evenly spaced, Microsoft recommends XIRR. [c002] The RATE function is designed to find the periodic rate for an annuity with payments; it is not the simplest substitute for the two-point formula when there are no interim cash flows. [c005]
Reverse calculations using CAGR
Rearrange the formula to estimate a value implied by an assumed CAGR:
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- Future value = beginning value × (1 + CAGR)^n
- Ending value = beginning value × (1 + CAGR)^n
- n = ln(ending value ÷ beginning value) ÷ ln(1 + CAGR)
These are mathematical projections, not guarantees. Investor.gov notes that investments do not have a fixed guaranteed rate of return and that market fluctuations create risk. [c006]
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.FAQ
Is CAGR the same as average annual return?
No. CAGR is a geometric annualized rate based on beginning and ending values. The arithmetic average is the sum of periodic returns divided by the number of periods and does not represent compounded endpoint growth when returns vary.
Does CAGR include dividends or deposits?
Not automatically. The result depends on the values used. If dividends are reinvested, reflect that in the endpoint data and state it. For a series with deposits or withdrawals, a two-point CAGR may be misleading; consider IRR or XIRR.
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Can CAGR be negative?
Yes. If a positive beginning value falls to a lower positive ending value, the conventional formula produces a negative CAGR. A zero beginning value makes the formula undefined, and negative or zero-crossing values usually call for another way to describe the change.
Does a historical CAGR predict future growth?
No. CAGR describes the growth between past endpoints under a smoothing assumption. It does not guarantee that the same rate will continue.
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