CAGR Calculator

CAGR is a measure of the mean annual growth rate of an investment over a specified period longer than one year. It represents the rate of return that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each year of the investment's life span.

CAGR is calculated using the formula: CAGR = (End Value / Start Value)^(1/n) - 1, where n is the number of years. This formula assumes that the growth rate is constant over the entire period and that all profits are reinvested.

CAGR provides a smoothed annual rate that eliminates the volatility of periodic returns that can render arithmetic means irrelevant. Unlike average annual return, CAGR accounts for the compounding effect and provides a more accurate representation of investment performance over time.

CAGR is useful for comparing investments over different time periods, analyzing business growth rates, evaluating investment performance, and making long-term financial projections. It's particularly valuable when comparing investments with different time horizons.

CAGR assumes a constant growth rate over the entire period, which rarely happens in reality. It doesn't account for volatility, risk, or the timing of cash flows. CAGR also doesn't reflect the actual year-by-year performance, only the average annual growth rate.

Yes, CAGR can be negative if the end value is less than the start value. A negative CAGR indicates that the investment or metric has decreased over the specified period, representing a loss rather than growth.

A higher CAGR indicates faster growth. For example, a CAGR of 10% means the value grew by an average of 10% per year. Compare CAGR to benchmarks like market indices, inflation rates, or other investments to assess relative performance.

When using months, the calculator automatically converts the period to years by dividing by 12. This allows for more precise calculations when dealing with periods shorter than a year. The CAGR formula always uses years as the time unit.

CAGR provides a useful snapshot of average annual growth but should be used alongside other metrics like volatility, Sharpe ratio, and maximum drawdown for comprehensive investment analysis. It's best for comparing investments over similar time periods.

Yes, CAGR can be applied to any metric that changes over time, such as revenue growth, user growth, market share, or any other business or economic indicator that you want to analyze for consistent growth patterns.