CAGR Calculator

Calculate Compound Annual Growth Rate (CAGR) for your investments, business revenue, and portfolio growth with detailed formula breakdown

The starting value of your investment or business metric
The ending value after the investment period
Number of years between initial and final value
Compound Annual Growth Rate
0%
Your investment grew at this annual rate
Initial Value
₹0
Final Value
₹0
Total Growth
₹0
Absolute Return
0%
Time Period
0 Years
Growth Multiple
0x

CAGR Formula & Calculation

CAGR = (Final Value / Initial Value)1/Years - 1
The CAGR formula calculates the geometric progression ratio that provides a constant rate of return over the time period.

Understanding CAGR (Compound Annual Growth Rate)

CAGR, or Compound Annual Growth Rate, is one of the most accurate ways to calculate and determine returns for investment portfolios, individual investments, and business metrics. It represents the rate at which an investment would have grown if it had grown at a steady, compounded rate over a specified period. Unlike simple average returns, CAGR accounts for the compounding effect, making it a more realistic measure of investment performance.

What is CAGR?

CAGR is the year-over-year growth rate of an investment over a specified period longer than one year. It represents a smoothed annual rate of growth, assuming the investment grew at a steady rate, even though actual returns may have fluctuated significantly. This makes CAGR particularly useful for comparing the performance of different investments or business metrics over time, regardless of volatility in the intermediate years.

The CAGR Formula Explained

The CAGR formula is: CAGR = (FV / PV)^(1/n) - 1

The formula calculates the geometric progression ratio that provides a constant rate of return over the time period. By raising the ratio to the power of 1/n, we effectively find the nth root, which gives us the annual equivalent rate.

Business Examples of CAGR

Example 1: E-commerce Revenue Growth

Scenario: An e-commerce company's annual revenue grew from ₹50 lakhs in 2019 to ₹1.25 crores in 2024.

Calculation: CAGR = (₹1,25,00,000 / ₹50,00,000)^(1/5) - 1 = 20.11% per year

Interpretation: The company's revenue grew at an impressive 20.11% annually, indicating strong market traction and business scalability.

Example 2: Startup User Base Growth

Scenario: A SaaS startup grew from 1,000 users in Year 1 to 25,000 users in Year 4.

Calculation: CAGR = (25,000 / 1,000)^(1/3) - 1 = 192.45% per year

Interpretation: This exceptional growth rate demonstrates viral product-market fit and effective customer acquisition strategies.

Example 3: Real Estate Portfolio Appreciation

Scenario: A real estate investment portfolio valued at ₹2 crores in 2015 is now worth ₹3.5 crores in 2025.

Calculation: CAGR = (₹3.5 Cr / ₹2 Cr)^(1/10) - 1 = 5.75% per year

Interpretation: The portfolio appreciated at 5.75% annually, which is healthy considering real estate's stability and rental income benefits.

Investment Examples of CAGR

Example 4: Mutual Fund Performance

Scenario: You invested ₹1,00,000 in an equity mutual fund that is now worth ₹2,15,000 after 7 years.

Calculation: CAGR = (₹2,15,000 / ₹1,00,000)^(1/7) - 1 = 11.65% per year

Interpretation: The fund delivered solid returns above the typical equity market average, making it a good long-term investment.

Example 5: Stock Market Investment

Scenario: A stock was purchased at ₹500 and is currently trading at ₹1,850 after 6 years.

Calculation: CAGR = (₹1,850 / ₹500)^(1/6) - 1 = 24.38% per year

Interpretation: This exceptional return significantly outperforms market indices, indicating strong company fundamentals or sector growth.

CAGR vs. Other Return Metrics

CAGR vs. Average Return: Average return is calculated by simply adding up all yearly returns and dividing by the number of years. CAGR, however, accounts for compounding and volatility, providing a more accurate representation of actual growth. For example, if an investment goes from ₹100 to ₹200 to ₹100 over two years, the average return is 25%, but CAGR is 0% since there's no actual growth.

CAGR vs. Absolute Return: Absolute return shows the total percentage change without considering time. CAGR annualizes this return, making it easier to compare investments across different time periods. A 100% absolute return over 10 years (CAGR of 7.2%) is very different from 100% over 2 years (CAGR of 41.4%).

When to Use CAGR

Limitations of CAGR

While CAGR is a powerful metric, it has limitations. It assumes smooth, constant growth and doesn't reflect actual volatility or year-to-year fluctuations. An investment with a 15% CAGR might have experienced +50% one year and -20% another. CAGR also doesn't account for additional investments or withdrawals made during the period. For a complete picture, use CAGR alongside other metrics like standard deviation, maximum drawdown, and Sharpe ratio.

Tips for Interpreting CAGR

Frequently Asked Questions

What is CAGR and how is it calculated?
CAGR (Compound Annual Growth Rate) is the rate at which an investment would have grown if it grew at a steady rate annually. It is calculated using the formula: CAGR = (Final Value / Initial Value)^(1/Years) - 1. It provides a smoothed annual growth rate that accounts for compounding.
What is a good CAGR percentage?
A good CAGR depends on the asset class and market conditions. For equity investments, 12-15% CAGR is considered excellent over the long term. For business revenue, 20-25% CAGR indicates strong growth. For real estate, 8-12% CAGR is typically good. Always compare CAGR against relevant benchmarks and inflation rates for proper context.
How is CAGR different from average return?
CAGR accounts for compounding and volatility, providing a geometric mean that represents actual growth over time. Average return is an arithmetic mean that simply adds up returns and divides by the number of periods, ignoring compounding effects. CAGR is more accurate for measuring investment performance, especially when returns vary significantly year to year.
Can CAGR be negative?
Yes, CAGR can be negative if the final value is less than the initial value, indicating a loss over the period. A negative CAGR shows the annualized rate of decline in your investment or business metric. For example, if an investment decreases from ₹100,000 to ₹80,000 over 5 years, the CAGR would be approximately -4.37%.
When should I use CAGR?
Use CAGR to compare investment performance across different time periods, evaluate business growth rates, analyze portfolio returns, compare mutual funds or stocks, assess real estate appreciation, measure revenue or profit growth in business analysis, and benchmark against market indices. It's particularly useful when you want to understand the smoothed annual growth rate over multiple years.
Does CAGR consider dividends or additional investments?
Standard CAGR calculation only considers the beginning and ending values. It doesn't account for dividends received, additional investments made, or withdrawals taken during the period. For investments with regular dividends or contributions, you should use XIRR (Extended Internal Rate of Return) for more accurate performance measurement.
What's the difference between CAGR and XIRR?
CAGR assumes a single lump sum investment with no intermediate cash flows, while XIRR accounts for multiple investments and withdrawals at different times. XIRR is more suitable for SIPs, regular contributions, or portfolios with irregular cash flows. CAGR is simpler and works well for single lump sum investments held over a period.

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