Compound annual growth rate — the constant yearly rate that would take a value from its start to its end over the period. It smooths out volatility: growing from $10,000 to $18,000 in 5 years is a CAGR of 12.5%, regardless of the bumpy path in between.

How do I compare growth rates over different time periods?

Always convert to CAGR rather than comparing total growth multiples directly. A company that grew from $2M to $5M in 4 years (2.5×, a 25.7% CAGR) actually grew more slowly per year than one that went from $2M to $4.2M in just 3 years (2.1×, a 28.0% CAGR) — the smaller total multiple happened faster.

Does a small difference in CAGR matter much over time?

Yes, dramatically. At 10% CAGR, $10,000 grows to about $25,937 in 10 years. At 12% CAGR — just 2 points higher — it grows to about $31,058, a $5,121 difference. Small CAGR gaps compound into large dollar gaps over long periods.

CAGR Calculator

Q: What is the CAGR formula?

CAGR = (Ending value ÷ Beginning value)^(1/years) − 1. It's the geometric mean growth rate, which is why it's lower than the simple average of yearly returns whenever returns vary.

Q: Why is CAGR lower than average annual return?

Because losses hurt more than equal gains help. Gain 50% then lose 50% and you're down 25% overall — the arithmetic average says 0%, but CAGR correctly reports about −13.4% per year. CAGR reflects what your money actually did.

The compound annual growth rate — the single number that lets you compare any two investments, businesses, or metrics on equal footing.

Written by the Calculator Index team · Last reviewed September 2026

Compound annual growth rate

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Total growth

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Growth multiple

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Doubling time at this rate

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The CAGR formula

CAGR = (End ÷ Start)^1/years − 1

Worked example

$10,000 grows to $18,000 in 5 years:

CAGR = (18,000 ÷ 10,000)^1/5 − 1 = 1.8^0.2 − 1 = 12.5% per year

Worked example — comparing two companies over different periods

Company A grew revenue from $2M to $5M in 4 years (a 2.5× multiple). Company B grew from $2M to $4.2M in 3 years (a 2.1× multiple — a smaller total gain).

Company A: CAGR = (5 ÷ 2)^1/4 − 1 = 2.5^0.25 − 1 = 25.7%/yr. Company B: CAGR = (4.2 ÷ 2)^1/3 − 1 = 2.1^0.333 − 1 = 28.0%/yr. Despite the smaller total multiple, Company B actually grew faster per year — it just had less time to compound.

How CAGR compounds over time

Years	Growth multiple at 10% CAGR	Total growth
1	1.10×	+10%
5	1.61×	+61%
10	2.59×	+159%
20	6.73×	+573%
30	17.45×	+1,645%

The same 10% CAGR looks unremarkable over 1 year but produces a 17.45× multiple over 30 years — the entire story of long-run compounding is captured in that one steady rate. This is also why comparing CAGR values that differ by only a couple of points is worth doing carefully; see the FAQ below for how a 2-point CAGR gap compounds into a large dollar difference.

Common CAGR mistakes

Comparing raw growth multiples across different time periods. As the company example above shows, a smaller total multiple over a shorter period can represent a faster annual growth rate than a larger multiple over a longer one.
Treating CAGR as the actual return in every individual year. CAGR is a smoothed average; the real year-by-year path can include years far above or far below it, including losses, as the FAQ on volatility explains.
Applying CAGR to a balance that includes deposits or withdrawals. CAGR assumes the start and end values reflect only growth — contributions inflate the apparent growth rate, so use the investment calculator when money was added along the way.

Where CAGR shines — and where it hides things

CAGR is the honest way to compare a 3-year investment against a 7-year one, a stock against a business's revenue growth, or your portfolio against an index. But it deliberately smooths the path: an investment that went +80%, −40%, +25% has the same CAGR as one that returned 12.5% steadily, yet very different risk. Use CAGR to compare outcomes, not to forecast a smooth ride. For a portfolio with ongoing contributions, CAGR of the balance overstates skill — contributions aren't growth; model those with the investment calculator instead. Related: total-period ROI, and the Rule of 72 for quick doubling-time estimates (72 ÷ CAGR ≈ years to double).

Frequently asked questions

What is CAGR?

The constant annual rate that takes a value from start to end over the period — volatility smoothed out.

What is the CAGR formula?

(End ÷ Start)^1/years − 1 — the geometric mean growth rate.

Why is CAGR lower than average annual return?

Losses outweigh equal gains: +50% then −50% averages 0% but compounds to −25% total (≈ −13.4%/yr CAGR).

How do I compare growth over different time periods?

Convert both to CAGR. $2M→$5M in 4 years (2.5×) is 25.7%/yr; $2M→$4.2M in 3 years (2.1×, smaller multiple) is actually faster at 28.0%/yr.

Does a small CAGR difference matter over time?

Yes — 10% vs. 12% CAGR on $10,000 over 10 years is $25,937 vs. $31,058, a $5,121 gap from just 2 percentage points.

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Note: CAGR assumes no intermediate contributions or withdrawals. Not investment advice. Last reviewed: September 2026.