What Is CAGR? Compound Annual Growth Rate Explained

CAGR — compound annual growth rate — is the constant yearly rate that takes a starting value to an ending value over a stretch of years. It answers "if this had grown at one steady rate, what would that rate have been?" It does not promise that the path was steady.

Key takeaways

• CAGR = (ending value ÷ starting value) ^ (1 ÷ years) − 1.
• Cumulative return is ending ÷ starting − 1. That is the total change, not the annual rate.
• $10,000 growing to $16,105.10 in five years is a 10% CAGR and a 61.05% cumulative return.
• CAGR assumes one lump sum. Deposits and withdrawals need a different method (XIRR).

The formula

CAGR = (ending value ÷ starting value) ^ (1 ÷ years) − 1

You need three numbers, all greater than zero: a start, an end, and a holding period in years (decimals are fine — 2.5 years is two and a half). A negative ending value cannot be annualized this way.

A worked example

Start with $10,000. Five years later it is $16,105.10.

• Cumulative return = $16,105.10 ÷ $10,000 − 1 = 61.05%.
• CAGR = (1.61051) ^ (1/5) − 1 = 10%.

Those are two readings of the same change. The 61% is what you made in total. The 10% is that result expressed as a smooth yearly rate — as if the account had grown 10% every year with no extra cash. Real years bounce around; CAGR ignores the bounce.

Try the same inputs in the CAGR calculator. It prints both numbers so they cannot be confused.

When the holding period is one year, CAGR and cumulative return match. That is a useful check, not a different formula.

What CAGR leaves out

CAGR does not know about money you added or took out. If you started with $10,000 and later deposited another $5,000, pretending the whole $16,105 grew from the original $10,000 overstates the rate. The honest tool for dated cash flows is a money-weighted return, usually called XIRR. Until that calculator exists here, treat CAGR as a lump-sum statistic only.

CAGR also says nothing about risk. Two paths can share a 10% CAGR — one a straight climb, one a crash and recovery. The single rate hides the ride.

Using it next to a live company

A company page such as Apple shows how market cap has moved, with an as-of date. Those history figures are not a CAGR until you pick a start value, an end value, and a span of years. Type those yourself; the ranking will not invent them. For a sense of size rather than a growth rate, start with what market cap is.

Over a long stretch, what moves market cap is mostly price, plus slower changes in the share count. CAGR can summarize the value change. It cannot tell you why it happened.

For general education only. Nothing here is investment advice.