The Compound Annual Growth Rate (CAGR) is a crucial metric used to determine the average annual growth of an investment over a specific period, assuming the profits were reinvested at the end of each year. It provides a smoothed-out rate of return, making it easier to compare the performance of different investments, like stocks or mutual funds, which often have volatile, up-and-down returns.
While an investment might grow 10% one year and 20% the next, CAGR gives you a single, representative number that describes the rate at which the investment would have grown if it had grown at a steady rate each year.
The CAGR Formula
CAGR is calculated with the following formula:
CAGR = [ (Ending Value / Beginning Value) ^ (1 / N) ] - 1
- Ending Value (EV) is the value of the investment at the end of the period.
- Beginning Value (BV) is the value of the investment at the start of the period.
- N is the number of years.
Our calculator simplifies this for you, giving an instant result to aid your investment analysis.