Finance guide
What Is CAGR?
CAGR, or Compound Annual Growth Rate, measures the average annual growth rate of an investment over a period of time, assuming the returns were compounded evenly each year.
CAGR formula
CAGR = (Ending Value / Beginning Value)^(1 / Years) - 1
CAGR is usually expressed as a percentage and helps normalize returns across time periods.
Why CAGR is useful
- Accounts for time
- Helps compare investments over different periods
- Smoother and more comparable than raw total return
Limitations of CAGR
- Smooths volatility and hides the path of returns
- Assumes steady compounding
- Does not capture risk by itself
CAGR vs other metrics
CAGR is often compared with ROI and payback period. Each metric tells you something different about performance, growth, or recovery time.
Use our CAGR calculator
When should you use CAGR?
- Long-term investment comparisons
- Comparing performance across time horizons
- Evaluating growth-oriented assets