# What Is CAGR? Compound Annual Growth Rate Explained

> CAGR is the constant annual rate that takes a starting value to an ending value. Here's how it differs from total return, with a worked example.

Source: MarketCapLens — https://www.marketcaplens.com/learn/what-is-cagr
Updated: 2026-09-17

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](https://www.marketcaplens.com/tools/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](https://www.marketcaplens.com/company/AAPL) 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](https://www.marketcaplens.com/learn/what-is-market-capitalization).

Over a long stretch, [what moves market cap](https://www.marketcaplens.com/learn/what-changes-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.*

## Frequently asked questions

### What is CAGR?

CAGR is the constant annual rate that grows a starting value into an ending value over a number of years. $10,000 growing to $16,105.10 in five years is a 10% CAGR. The MarketCapLens CAGR calculator uses this same formula.

### Is CAGR the same as total return?

No. Total, or cumulative, return is simply ending value divided by starting value, minus one — 61.05% in that example. CAGR restates the same change as a smooth yearly rate. Both numbers describe the same path; they are not two different investments.

### Can I use CAGR if I added or withdrew money?

Not honestly. CAGR assumes one lump sum and no cash in or out. Deposits and withdrawals need a money-weighted return (XIRR) that dates each cash flow. The calculator will not treat extra contributions as if they had been there from day one.