What CAGR tells you
The compound annual growth rate is the constant yearly rate that would grow your starting value to the ending value over the period — as if it rose by the same percentage every year. It smooths out the ups and downs into one clean number, which is why analysts use it to describe investment and revenue growth.
CAGR vs average return
A simple average of yearly returns overstates growth, because it ignores compounding and volatility. A fund up 100% then down 50% averages +25% but actually ends flat — its CAGR is 0%. CAGR reflects the real compounded outcome, so it's the more honest measure.
Where CAGR is used
Beyond investing, CAGR describes how revenue, users or any quantity has grown per year. It's ideal for comparing two things that grew over different time spans, or for setting a realistic growth assumption in a forecast. It does not capture the volatility along the way — only the start and end points.
Reading the result
The CAGR is your smoothed annual rate; the total growth and multiple show the overall change. Remember CAGR assumes a single lump sum with no additions — if you contributed over time, a compound interest or SIP calculation fits better.
Frequently asked questions
What is CAGR?
Compound annual growth rate — the steady yearly rate that grows a beginning value to an ending value over a number of years, accounting for compounding.
How is CAGR calculated?
Divide the ending value by the beginning value, raise it to the power of 1 divided by the number of years, subtract 1, and multiply by 100.
Why use CAGR instead of an average?
A simple average ignores compounding and volatility and overstates growth. CAGR reflects the actual compounded result, so it compares periods fairly.
Does CAGR account for deposits?
No — it assumes a single amount growing with no contributions. For regular investments, use a compound interest or SIP calculator instead.