CAGR & ROI Calculator

CAGR - Compound Annual Growth Rate

CAGR measures the annual growth rate of an investment over a period, assuming compound growth.

CAGR Formula

Why CAGR Matters

• Smooths out volatility in yearly returns
• Provides a single comparable growth figure
• Accounts for compounding effects
• Standard metric for investment comparison

CAGR vs Average Return

Historical CAGR Examples

• S&P 500 (30-year): ~10%
• Real Estate (REITs): ~8-10%
• Bonds: ~3-5%
• Inflation: ~2-3%

Worked Example: Calculating CAGR Step by Step

Suppose you invest $1,000 and it grows to $1,300 over 3 years:

1. Divide the ending value by the beginning value: 1,300 / 1,000 = 1.3.
2. Raise to the power of 1 ÷ years: 1.3^(1/3) ≈ 1.0914.
3. Subtract 1: 1.0914 − 1 = 0.0914, or 9.14%.

Note that the naive average (30% total ÷ 3 = 10% per year) is higher than the true CAGR. Compounding means the constant annual rate that gets you from start to finish is always lower than the simple average of yearly gains.

Solving Backwards: Future Value, Present Value, and Time

The core relationship FV = PV × (1 + CAGR)^t can be rearranged to solve for any variable — matching the modes of this calculator:

• Future value: $20,000 growing at 7% CAGR for 10 years becomes $20,000 × 1.07^10 ≈ $39,343.
• Present value: to reach $50,000 in 8 years at 6% CAGR, you need $50,000 / 1.06^8 ≈ $31,371 today.
• Doubling time: at 8% CAGR your money doubles in ln(2) / ln(1.08) ≈ 9.01 years.

CAGR vs Total Return vs Simple Average

For the $1,000 → $1,300 example over 3 years:

Total return answers "how much did it change overall?"; CAGR answers "what constant annual rate produces the same change?" Always use CAGR when comparing investments held for different lengths of time.

CAGR vs IRR

CAGR ignores everything that happens between the endpoints. If money moved in or out during the period (regular contributions, dividends withdrawn), IRR is the better tool.

Where CAGR Is Used

• Investment comparison: comparing funds or portfolios held for different periods on equal footing.
• Business growth: revenue or customer CAGR. A company growing revenue from $2M to $5M over 4 years has a CAGR of (5/2)^(1/4) − 1 ≈ 25.74%.
• Estimating doubling time: the Rule of 72 gives years to double as 72 ÷ CAGR. At 9.14% CAGR, money doubles in about 72/9.14 ≈ 7.9 years.

How Fast Does Money Double?

Calculating CAGR in a Spreadsheet

With the beginning value in B1, ending value in B2, and years in B3:

Format the cell as a percentage. The built-in RATE function gives the same result when there are no interim cash flows: =RATE(B3,0,-B1,B2).

Limitations and Common Mistakes

• Dividing total return by years gives a simple average, not CAGR.
• Entering percentages directly: convert 8% to 0.08 before using it in formulas.
• Ignoring cash flows: contributions and withdrawals during the period make simple CAGR misleading — use IRR instead.
• Forgetting risk: two investments can share a CAGR with very different volatility. A negative CAGR simply means the value shrank on an annualized basis (e.g., $20,000 → $12,000 over 4 years ≈ −11.99% CAGR).

Revenue CAGR Case Study

A business reports revenue of $50M in 2022 and $78M in 2026:

1. Ratio: 78/50 = 1.56.
2. Years: 2026 − 2022 = 4.
3. CAGR: 1.56^(1/4) − 1 ≈ 11.76%.

This single number summarizes four years of possibly uneven annual growth — which is exactly why it is both useful and misleading if you forget the "smoothed" part.

How to Use This Calculator

• Calculate CAGR: enter the present (beginning) value, future (ending) value, and years.
• Future value mode: enter the present value, rate, and years to project growth.
• Present value mode: enter the target future value, rate, and years to see what is needed today.

Always double-check that the beginning and ending values correspond to the same measure (revenue with revenue, share price with share price) and that the period matches your question.

CAGR in Context: What Counts as Good?

These are broad historical ranges, not promises. A CAGR above inflation is growing in real terms; anything compared across assets should use the same period.

The Midpoint Myth: CAGR Ignores the Path

Two investments can share a CAGR with completely different journeys. $1,000 growing to $2,000 over 5 years is a 14.87% CAGR (2^(1/5) − 1) — whether it grew smoothly or crashed 40% in year 2 and recovered. CAGR is blind to everything between the endpoints, which is why it must be paired with a measure of volatility (like standard deviation or maximum drawdown) for any serious comparison.

Choosing the Period Carefully

• Same period, same assets: compare investments over identical date ranges, or endpoint choices will dominate the result.
• Longer is usually fairer: short periods amplify the effect of a lucky or unlucky endpoint.
• Zero or negative start: CAGR is undefined when the beginning value is zero or negative — the formula has no meaningful answer there.

CAGR vs XIRR: The Spreadsheet Upgrade

When cash flows are irregular — deposits on random dates — neither CAGR nor IRR's textbook formula applies directly. Spreadsheet XIRR handles dated cash flows: =XIRR(values, dates). It solves the same "what constant rate explains this?" question that CAGR answers, but for real-world messy timelines.

Reading a Negative CAGR

A negative CAGR is not a loss rate on top of losses — it is the constant annual shrinkage rate. A −11.99% CAGR over 4 years turns $20,000 into $12,000. When comparing two declining investments, the less negative CAGR lost less, but both need a strategy change, not just measurement.