What is CAGR?
CAGR stands for compound annual growth rate. Investments, sales and populations rarely grow by the same amount each year. CAGR answers a simpler question: if growth had been perfectly steady, what yearly rate would get you from where you started to where you ended up?
It's "compound" because each year's growth builds on the last. That makes it different from the simple average of yearly returns, which can be badly misleading when returns swing up and down.
The CAGR formula
Multiply by 100 to get a percent. "Years" is the number of years between the two values, not the number of values. From the end of 2020 to the end of 2025 is 5 years, even though you might list six year-end values.
Worked example
An investment grows from $10,000 to $16,000 in 5 years.
- Divide the end by the start: 16,000 ÷ 10,000 = 1.6
- Raise to the power 1 ÷ 5 = 0.2: 1.60.2 = 1.098561
- Subtract 1: 0.098561, or 9.86% a year
Check it: $10,000 × 1.0985615 = $16,000. The total gain was 60%, but because growth compounds, the yearly rate is 9.86%, not 60 ÷ 5 = 12%.
How to calculate CAGR in Excel
Put the beginning value in B1, the ending value in B2 and the number of years in B3. Any of these formulas gives the same answer; format the cell as a percentage.
| Method | Formula | Result for the example |
|---|---|---|
| Power operator | =(B2/B1)^(1/B3)-1 | 9.86% |
| POWER function | =POWER(B2/B1,1/B3)-1 | 9.86% |
| RRI function | =RRI(B3,B1,B2) | 9.86% |
RRI is Excel's built-in function for this. Its syntax is RRI(nper, pv, fv): the number of periods, the present (starting) value and the future (ending) value. It returns the equivalent rate per period, so if you give it months it returns a monthly rate. Microsoft's own example, =RRI(96,10000,11000), treats 8 years as 96 monthly periods and returns 0.0009933, about 0.0993% a month; using 8 periods instead gives about 1.2% a year. Excel returns #NUM! if the argument values aren't valid.
If you have dates instead of a year count, compute the years first: =(B2/B1)^(365/(D2-D1))-1, where D1 and D2 hold the start and end dates.
Turning the formula around
The same relationship answers other questions. To find the ending value from a growth rate, use end = start × (1 + CAGR)years. In Excel that's =B1*(1+B4)^B3, with the rate in B4. To find how many years it takes to reach a target, use years = ln(end ÷ start) ÷ ln(1 + CAGR), or =LN(B2/B1)/LN(1+B4). For example, $100,000 of sales growing at 14% a year takes ln(2.5) ÷ ln(1.14) = about 7 years to reach $250,000, which matches a CAGR of 13.99% over exactly 7 years.
CAGR vs average annual return
Suppose an investment gains 50% one year and loses 50% the next. The average return is 0%, but $100 becomes $150 and then $75. The CAGR is (75 ÷ 100)1/2 − 1 = −13.4% a year, which matches what really happened to your money. That's why fund performance and business growth are usually reported as compound rates.
Common mistakes
- Counting values instead of years. Six year-end values span five years.
- Dividing the total percent by the years. That's a simple average, and it overstates growth.
- Zero or negative starting values. CAGR doesn't work if you start at zero or below, and an ending value of zero always gives −100%.
- Ignoring deposits and withdrawals. CAGR only uses two values. If money was added or taken out along the way, use the IRR calculator instead.
What CAGR doesn't tell you
CAGR hides the ride. Two investments with the same 7% CAGR can have very different ups and downs, and it says nothing about risk. It also depends heavily on the start and end dates you choose; starting at a market low makes any later growth look stronger.
Calculate it in one step
The CAGR calculator does this for you, shows the working, and also finds the ending value from a CAGR. For the total and annualized return on a single investment, try the ROI calculator.