CAGR Calculator
Calculate the Compound Annual Growth Rate between any two values. See year-by-year growth projections and visualize how values compound over time.
Starting value or revenue
Final value or revenue
Time period in years
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Understanding Compound Annual Growth Rate
CAGR is one of the most widely used metrics in market research, investing, and business planning. It provides a smoothed annual growth rate that eliminates the effects of volatility, making it ideal for comparing growth across different time periods, markets, or companies.
The CAGR Formula
CAGR = (Ending Value / Beginning Value) ^ (1 / Number of Years) - 1. This formula calculates the geometric mean of annual growth rates, which accounts for the compounding effect. Unlike simple average growth rates, CAGR gives you the constant rate needed to reach the final value.
When to Use CAGR
Use CAGR when you need to compare the growth of different investments, markets, or business metrics over the same or different time periods. It's commonly used in pitch decks to show market growth, in financial modeling to project future values, and in competitive analysis to benchmark performance.
Limitations of CAGR
CAGR smooths out all volatility, which can hide important year- to-year variations. A market with steady 10% growth and one that swings between -20% and +40% could show the same CAGR. Always look at individual year data alongside CAGR for a complete picture.
Frequently Asked Questions
- What is CAGR (Compound Annual Growth Rate)?
- CAGR is the mean annual growth rate of an investment or business metric over a specified time period longer than one year. It represents the rate at which something would have grown if it had grown at a steady rate over the entire period, smoothing out volatility between individual years.
- How is CAGR calculated?
- CAGR is calculated using the formula: CAGR = (Ending Value / Beginning Value)^(1/Number of Years) - 1. For example, if a market grew from $10M to $25M over 5 years, the CAGR would be (25/10)^(1/5) - 1 = 20.1%.
- What is a good CAGR for a market?
- A 'good' CAGR depends on the industry and maturity of the market. Emerging markets (AI, clean energy) may see CAGRs of 20-40%. Mature markets (consumer staples) typically grow at 3-7%. For startups, investors often look for company growth rates of 50-100%+ annually, which is different from overall market CAGR.
- What is the difference between CAGR and average growth rate?
- Average growth rate is the arithmetic mean of annual growth rates, which can be misleading when growth is volatile. CAGR uses geometric mean, accounting for compounding, and gives you the smooth, constant rate that would produce the same end result. CAGR is generally considered more accurate for measuring investment or market performance.
- Can CAGR be negative?
- Yes, CAGR can be negative if the ending value is lower than the beginning value, indicating a decline over the measured period. For example, if a market shrank from $50M to $30M over 3 years, the CAGR would be approximately -15.6%.