CAGR Calculator

Compound Annual Growth Rate (CAGR) Explained

The Compound Annual Growth Rate (CAGR) is a widely used financial metric that measures the mean annual growth rate of an investment over a specified time period longer than one year. It represents one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.

Why use CAGR?

Investments rarely grow at a steady rate. A stock might increase by 20% one year, fall 10% the next, and rise 15% the year after. Attempting to figure out your average return by simply averaging these percentages is misleading. CAGR provides a smoothed rate of return, essentially answering the question: "If the investment grew at a steady, consistent rate every year, what would that rate be?" It assumes that profits are reinvested at the end of each year of the investment's lifespan.

The Mathematical Formula:
CAGR = [(Final Value / Initial Value) ^ (1 / Number of Years)] - 1

By adjusting the sliders and inputs, you can see how quickly money multiplies when compounded over long periods. The line chart illustrates this geometric growth trajectory. As time increases, the curve steepens, beautifully demonstrating the "magic of compounding" - where you earn returns not just on your initial capital, but also on your accumulated past returns.

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