How this is calculated

CAGR = (ending value ÷ starting value) raised to the power of (1 ÷ years) − 1. Enter the value at the start of the period, the value at the end, and how many years elapsed. The result is the constant annual rate that would turn the starting value into the ending value over that period.

Worked example

An investment grows from $1,000 to $1,800 over 5 years. 1800 ÷ 1000 = 1.8; 1.8 ^ (1 ÷ 5) = 1.1247; 1.1247 − 1 = 0.1247, or about 12.47% a year. That is the smoothed rate, not the path the investment actually took.

How to use this estimate

CAGR smooths uneven performance into one annualized rate. It is a comparison measure, not a promise that growth occurred evenly or will continue.

FAQ

Can CAGR be negative?

Yes. An ending value below the starting value produces a negative annualized result.

Does CAGR include cash flows?

No. Additional deposits or withdrawals require a cash-flow-aware return model.