CAGR Calculator: Compound Annual Growth Rate & Year-by-Year Table

How to calculate Compound Annual Growth Rate (CAGR)

The Compound Annual Growth Rate (CAGR) measures the geometric mean annual growth rate of an investment, revenue stream, or portfolio over multiple years. Unlike a simple arithmetic average, CAGR smooths out annual volatility and reveals the exact constant rate at which your capital would have compounded if growth had been steady.

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The CAGR formula

$$\text{CAGR} = \left(\frac{\text{Ending Value}}{\text{Beginning Value}}\right)^{\frac{1}{n}} - 1$$

$$\text{Total Percentage Return} = \frac{\text{Ending Value} - \text{Beginning Value}}{\text{Beginning Value}} \times 100$$

Variables explained:

• Beginning Value: The starting asset value, revenue, or investment principal at the beginning of the evaluation period.
• Ending Value: The final value achieved at the end of the specified timeframe.
• $n$ (Time Period in Years): The total duration between the starting and ending points, expressed in fractional or whole years.

Worked example: 5-year investment portfolio

Suppose you invest capital in an index portfolio that grows over a five-year period:

• Starting Principal ($V_0$): $10,000
• Final Valuation ($V_n$): $25,000
• Holding Period ($n$): 5 years

Step-by-step arithmetic:

1. Growth Multiple: $\frac{$25,000}{$10,000} = 2.50$
2. Annualizing Exponent: $\frac{1}{5} = 0.20$
3. Geometric Mean: $2.50^{0.20} \approx 1.20112$
4. CAGR Percentage: $(1.20112 - 1) \times 100 = \mathbf{20.11%}$ per year
5. Cumulative Total Return: $\frac{$25,000 - $10,000}{$10,000} \times 100 = \mathbf{150.0%}$

Your money did not grow by a simple 30% per year ($150% \div 5$). Because gains compound on top of prior gains, a 20.11% annual compounding rate generated the full 150% cumulative return.

Why arithmetic averages distort financial reality

A common analytical trap is taking the arithmetic mean of annual percentage gains and losses:

• Year 1: Portfolio surges +50% ($10,000 becomes $15,000)
• Year 2: Portfolio drops -50% ($15,000 falls to $7,500)

$$\text{Arithmetic Average} = \frac{+50% + (-50%)}{2} = \mathbf{0.0%}$$

The simple average suggests you broke even. In reality, you suffered an actual cash loss of $2,500 (-25% cumulative loss). The true compounded rate is: $$\text{CAGR} = \left(\frac{$7,500}{$10,000}\right)^{\frac{1}{2}} - 1 = \sqrt{0.75} - 1 = \mathbf{-13.40%}\text{ per year}$$

Whenever compounding is involved, always use CAGR to evaluate multi-year performance.

How to calculate CAGR in Microsoft Excel & Google Sheets

You can calculate CAGR in spreadsheet software using two methods:

= (Ending_Cell / Beginning_Cell) ^ (1 / Years) - 1

Or using the built-in rate function:

= RRI(Years, Beginning_Cell, Ending_Cell)

For irregular cash flows or variable deposit timing, use =XIRR() instead.

Frequently asked questions

Can CAGR be negative?

Yes. If your ending balance is lower than your beginning balance, the growth multiple is less than 1.0, producing a negative annual CAGR.

Does CAGR reflect market volatility?

No. CAGR is an annualized smoothed rate. It measures the net compound rate between the start and end dates, ignoring interim peaks, drawdowns, and market crashes.

What is the difference between CAGR and IRR?

CAGR assumes a single lump-sum initial investment with no cash added or withdrawn. The Internal Rate of Return (IRR) accounts for multiple staggered cash inflows and withdrawals across different points in time.