Compound Annual Growth Rate (CAGR) Calculator

This calculator works out the Compound Annual Growth Rate (CAGR) for any investment, business metric or revenue figure, giving you the single steady annual growth rate that would take a starting value to an ending value over a set number of years. Because real growth rarely moves in a straight line, CAGR smooths out the year-to-year swings so you can compare two investments, two business periods, or two competing opportunities on a fair, like-for-like basis rather than being misled by a simple average of yearly percentage changes. The tool has three linked sections, so you can solve for whichever figure you are missing. Enter your initial amount, ending amount and the number of years of investment to find the CAGR itself, shown as a percentage. Alternatively, enter your initial amount, an assumed CAGR and the number of years to project the ending amount you would reach. Or enter your initial amount, ending amount and target CAGR to see how many years of investment would be required to get there. Use it to check the real return on shares, KiwiSaver, a savings goal or business revenue growth, or to set a realistic growth target. Because CAGR assumes smooth, consistent compounding, actual year-to-year results will vary, and this is an indicative estimate only, not financial advice.

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Compound annual growth rate (CAGR) is a financial metric that is used to measure the rate at which an investment or business has grown over a specific period. It is a valuable tool for evaluating the performance of an investment or business because it takes into account the impact of compounding, which is the reinvestment of earnings back into the investment or business. CAGR is commonly used to analyse and standardise the change over time in directly quantifiable data such as revenue, profit, or sales.

CAGR is an effective way to measure the growth rate of an investment or business because it accounts for the compounding effect. For example, suppose that an investment has grown by 10% in the first year, 20% in the second year, and 30% in the third year. The simple average of the growth rates is (10% + 20% + 30%) / 3 = 20%. However, the compound growth rate is calculated by multiplying the growth rates together and taking the nth root, where n is the number of years. In this example, the CAGR is (1.10 x 1.20 x 1.30)^(1/3) - 1 = 19.72%.

CAGR is an important tool for investors because it allows them to compare the performance of different investments over the same period. For example, suppose that an investor is considering two different stocks, A and B. Stock A has grown by 10% per year for the past three years, while stock B has grown by 5% per year for the past five years. To compare the performance of these two stocks, the investor can calculate the CAGR for each stock. The CAGR for stock A is 10% per year and for stock B is 5% per year -- these are constant annual rates, so the CAGR equals the annual rate. For reference, the cumulative total return over the holding period is (1 + 10%)^3 - 1 = 33.10% for stock A and (1 + 5%)^5 - 1 = 27.63% for stock B. Based on these calculations, the investor may decide that stock A is a better investment because it has a higher CAGR.

CAGR is also a useful tool for businesses because it allows them to evaluate their performance over time. For example, suppose that a company has had revenue of $100,000 in the first year, $120,000 in the second year, and $150,000 in the third year. The simple average growth rate is (20% + 25%) / 2 = 22.5%. However, the CAGR is (150,000/100,000)^(1/2) - 1 = 22.47%. This calculation shows that the company has grown at an average rate of 22.47% per year over the two-year period.

CAGR is particularly useful for businesses that are looking to expand into new markets or launch new products. For example, suppose that a company is considering launching a new product line that is expected to generate $1 million in revenue in the first year, $2 million in the second year, and $3 million in the third year. The CAGR for this product line is (3,000,000/1,000,000)^(1/2) - 1 = 73.21%. This calculation shows that the product line is expected to grow at an average rate of 73.21% per year over the two-year period. By using CAGR, the company can evaluate whether this level of growth is sufficient to justify the investment in the new product line.