CAGR Calculator

CAGR, the compound annual growth rate, is the single constant rate that would turn a beginning value into an ending value over a given number of years if it grew by the same percentage every year. You calculate it by dividing the ending value by the beginning value, raising the result to the power of one divided by the number of years, and subtracting one. If a value goes from 1,00,000 to 2,00,000 over five years, the CAGR is 2 raised to the power of one-fifth, minus one, which is about 0.1487, or 14.87 percent a year. It is the geometric mean of the yearly growth factors, not the simple average of the yearly returns, and it is a measurement of a record that already happened, not a rate you should expect to repeat.

Absolute return, also called total return, is simply how much the value changed in total: the ending value divided by the beginning value, minus one, with no reference to time. Going from 1,00,000 to 2,00,000 is an absolute return of 100 percent whether it took one year or twenty. CAGR takes that same total change and spreads it evenly across the years to give a per-year rate, so the 100 percent total becomes about 14.87 percent a year over five years, 7.18 percent a year over ten, and 3.53 percent a year over twenty. Absolute return tells you how far the value moved; CAGR tells you how fast, and the two only agree when the horizon is exactly one year. Quoting a large absolute return without the years is the oldest way to make a slow record sound quick.

Because money compounds, it multiplies rather than adds, and a percentage loss removes more than the same percentage gain adds back. Take a year of plus 50 percent followed by a year of minus 50 percent. The simple, arithmetic average of those two returns is zero, which suggests you broke even, but the capital went from 1.00 to 1.50 to 0.75, a loss of 25 percent over two years. The CAGR is 0.75 raised to the power of one-half, minus one, which is about minus 13.4 percent a year, and that negative figure is the truth your account experienced. CAGR is the geometric mean of the growth factors precisely because it respects compounding. For any sequence that is not perfectly flat, the CAGR is lower than the arithmetic average of the yearly returns, and the gap widens with the size of the swings, an effect known as volatility drag.

CAGR hides the journey. It is built from only two data points, the beginning and the ending value, so it reports nothing about what happened in between. Two records with the identical CAGR can have wildly different interim drawdowns: one may have risen almost in a straight line, while the other fell 45 percent below its peak partway through before recovering to the same finish. The compound rate is identical, but the experience, and the chance you would have stayed invested through the second one, is not. CAGR also hides the sequence of returns, which starts to matter as soon as money is added or withdrawn, and it hides whether the endpoints were cherry-picked. A headline CAGR quoted without the maximum drawdown, the length of the window and the sample it was drawn from is close to meaningless.

There is no universal good number, because a CAGR is only meaningful alongside four things it does not itself contain: the length of the window, the interim drawdown it took to earn it, the sample it was drawn from, and whether it is before or after inflation, costs and tax. A high CAGR measured over one or two years says almost nothing, because a short window is easy to cherry-pick and unlikely to persist. The same figure measured across a long horizon that included a deep fall and a recovery is far more informative, because it survived a stress. A lower, steadier CAGR with a shallow maximum drawdown can be a far better record than a higher one that required a fall most people would have sold into. Judge the rate by the drawdown and the sample that produced it, never by the headline alone, and never treat any past CAGR as a rate you are owed in future.

There is no fixed threshold, but the shorter the window, the less a CAGR tells you and the easier it is to manufacture. Over a single year the CAGR is just the absolute return, and it can be enormous or deeply negative on nothing more than where the start and end dates happened to fall. Annualising a few months into a yearly rate is worse still, because it projects a short run of luck onto a full year. As a rule of thumb, treat a CAGR over less than about three years as a data point, not evidence, and be most suspicious when the window begins at a low and ends at a high, which is the classic cherry-pick. A longer window that spans at least one full rise and fall is what lets a CAGR reflect a process rather than a lucky slice of the calendar.

No, not the simple point-to-point CAGR. That formula assumes a single amount was put in at the start and left untouched until the end. The moment you add or withdraw capital, part of the ending value is deposited cash rather than growth, so dividing the end by the beginning overstates the rate, sometimes wildly. The correct measure when there are cashflows is a money-weighted return, computed as the internal rate of return of the dated cashflows, often called XIRR in Indian spreadsheets. It is the single annual rate that makes the present value of every deposit, withdrawal and the final value net to zero. The advanced mode in this tool flags the contamination and estimates that money-weighted rate for you, but for a serious record you should compute the internal rate of return on the actual dated cashflows.

No. A CAGR is a measurement of a record that has already happened, and nothing more. Extrapolating it forward assumes the same rate will simply continue, which ignores that the future path is unknown, that high rates tend to mean-revert, and that the very sample you are looking at may exist only because it survived. This tool computes the CAGR entirely from the two values and the duration you type in; it has no view on whether that rate is repeatable and cannot know what any market or account will do next. The value of a CAGR is as a clean summary of what did happen, useful for comparison when the window, the drawdown and the sample are stated beside it. Reading it as a forecast is the single most common way the number is misused.

All three annualise growth, but they assume different cashflows. CAGR is the simplest: one amount in at the start, one amount out at the end, no additions or withdrawals, so it only needs the beginning value, the ending value and the years. IRR, the internal rate of return, generalises this to a series of cashflows and finds the single rate that makes their present value net to zero; it is the right tool when money goes in and out at regular intervals. XIRR is IRR for cashflows on irregular, actual dates, which is how real accounts behave, and it is the function most Indian spreadsheets expose for this. Use CAGR for a single untouched lump; use IRR or XIRR the moment there is more than one cashflow. Reporting a point-to-point CAGR on an account you were adding to or drawing from is a common error that flatters the record.