What is the simple formula for CAGR?

CAGR = (Ending Value / Beginning Value)^(1 / Number of Years) - 1. Multiply the result by 100 to express it as a percentage. This single formula works for any investment, business revenue, or savings balance measured over more than one year.

How do I calculate CAGR in Excel?

Use either =(End/Start)^(1/Years)-1 formatted as a percentage, or the built-in =RRI(Years, Start, End). RRI is preferred because it handles the math internally and returns the annualized growth rate directly. Google Sheets supports the same RRI function.

What is a good CAGR for an investment?

For US equities, a CAGR of 7% to 10% over 10+ years is considered solid, roughly matching long-run S&P 500 averages. For small businesses, 15% to 25% revenue CAGR is strong. Anything above 30% sustained for 5 years is rare and usually unsustainable.

What is the difference between CAGR and average annual return?

Average annual return is the arithmetic mean of yearly returns and ignores compounding, so volatile years inflate it. CAGR is the geometric mean and reflects the actual smoothed rate that turns the starting value into the ending value. CAGR is almost always lower than the simple average.

Can CAGR be negative?

Yes. If the ending value is lower than the beginning value, CAGR will be negative, indicating an annualized loss. For example, $10,000 falling to $8,000 over 3 years gives a CAGR of about -7.17% per year.

How do I calculate CAGR for 5 years?

Divide the value at the end of year 5 by the value at the start of year 1, raise that to the 1/5 power, then subtract 1. If $20,000 grew to $32,210 in 5 years, CAGR = (32210/20000)^(0.2) - 1 = 10.0% per year.

What is reverse CAGR and how do I use it?

Reverse CAGR works backward: you supply a starting amount, a target CAGR, and a number of years, and solve for the future value. Formula: Future Value = Start x (1 + CAGR)^Years. It is useful for goal setting, such as projecting retirement balances.

Does CAGR account for deposits or withdrawals?

No. CAGR assumes a single starting amount with no cash flows in or out. If you add or withdraw money during the period, you should use IRR (internal rate of return) or XIRR in Excel instead, which handle uneven cash flows correctly.

Is CAGR the same as compound interest?

They are closely related but not identical. Compound interest is a forward-looking calculation given a known rate. CAGR is a backward-looking measure that reverse-engineers the equivalent constant compounding rate from a known start and end value. Both rely on the same exponential math.

How is CAGR different from IRR?

CAGR assumes one inflow at the start and one outflow at the end. IRR handles multiple cash flows on different dates. If you invested $5,000 in year 1, $3,000 in year 2, and withdrew $12,000 in year 5, you should use IRR or XIRR, not CAGR.

Why does CAGR smooth out volatility?

CAGR ignores the path between the start and end values and only measures the equivalent constant rate. A stock that gained 50%, lost 30%, and gained 20% in three years has the same CAGR as one that grew at a steady single-digit rate to reach the same end value.

How many years do I need to calculate CAGR?

You need at least one full year between the beginning and ending values. CAGR is most meaningful over 3 to 10 years because shorter periods are dominated by noise and longer periods can hide structural changes in the underlying investment or business.

Should I use CAGR for monthly or daily data?

You can, but you must convert n into years. For 36 months, n = 3. For 730 days, n = 2. CAGR is, by definition, an annualized rate, so any time unit must first be expressed as a fraction of a year before plugging into the formula.

Home › Guides › How to calculate CAGR: formula, Excel method, and worked examples

How to calculate CAGR: formula, Excel method, and worked examples

By Muhammad Zohaib Ameer · June 3, 2026 · Business & Money Math · 10 min read

To calculate CAGR (compound annual growth rate), divide the ending value by the beginning value, raise the result to the power of 1 divided by the number of years, then subtract 1. Written as a formula, CAGR = (EV / BV)^(1/n) - 1. Multiply the result by 100 to express it as a percentage. For example, an investment that grew from $10,000 to $16,105 over 5 years has a CAGR of (16,105 / 10,000)^(1/5) - 1 = 10.00% per year. That single number tells you the smoothed annual rate that turns your starting amount into your ending amount, regardless of how bumpy the path was in between.

This guide walks through the formula step by step, shows the fastest way to calculate CAGR in Excel, runs three fully worked examples (an investment, a small business, and a real estate flip), and explains the common mistakes that throw off most beginner CAGR calculations. If you want the answer in seconds, our free CAGR calculator does the math for you. Read on if you also want to understand the math, the Excel shortcuts, and when CAGR is the wrong tool for the job.

What CAGR actually measures

CAGR stands for compound annual growth rate. It is the constant annual rate at which a single starting amount would have had to grow, compounding once per year, to reach the ending amount over a given number of years. In plain English: it is the steady percentage that smooths out all the messy ups and downs into one clean number you can compare across investments.

CAGR is a geometric mean, not an arithmetic average. That matters because investments rarely move in a straight line. If your portfolio gains 40% in year one and loses 20% in year two, the simple average looks like a 10% annual gain. But your $10,000 actually ended up at $11,200, which is a CAGR of only 5.83%. CAGR is honest about what compounding really did to your money, which is why analysts, founders, and finance writers all rely on it. The same logic underpins our deeper explainer on how compound interest works.

The CAGR formula explained

The cagr formula is short, but every term matters:

CAGR = (Ending Value / Beginning Value)^(1 / Number of Years) - 1

Ending Value (EV): the value of the investment or metric at the end of the period.
Beginning Value (BV): the value at the very start of the period.
Number of Years (n): the count of full years between BV and EV. Five months is 5/12, not 5.
The exponent (1/n): annualizes the total growth into a per-year rate.
The minus 1: strips out the original principal so you are left only with the growth.

If you ever feel lost, remember the two halves of the formula. The fraction EV/BV tells you how many times your money multiplied. The exponent and subtraction then spread that multiplication evenly across the years. The same exponential math drives our compound interest calculator and the classic Rule of 72 calculator, which estimates how long it takes money to double at a given CAGR.

How to calculate CAGR step by step

Follow these six steps and you will never miscalculate CAGR again. They match the structured how-to at the top of this article.

Identify BV, EV, and n. Write down the beginning value, the ending value, and the number of full years between them. Mixing up months and years here is the single most common error in beginner spreadsheets.
Divide EV by BV. This gives the total growth multiple. A result of 2.0 means your money doubled across the full period.
Raise that result to the (1/n) power. This annualizes it. In a calculator, type the EV/BV result, press the exponent key, and enter 1 divided by the years.
Subtract 1. What is left is the annualized growth, expressed as a decimal.
Convert to a percentage. Multiply by 100 (or format the cell as a percentage in Excel) to get the final CAGR.
Verify by compounding forward. Multiply BV by (1 + CAGR)^n. If you land back on EV, your CAGR is correct.

Step 6 is the one most people skip, and it is the one that catches typos before they end up in a client report or an investor email.

Calculate CAGR in Excel and Google Sheets

You do not need to memorize anything beyond two patterns to calculate cagr in excel:

Manual formula: =(B2/A2)^(1/C2)-1, where A2 = beginning value, B2 = ending value, C2 = number of years. Format the cell as a percentage with two decimals.
Built-in function: =RRI(C2, A2, B2). RRI stands for the equivalent interest rate of an investment. It takes the years, present value, and future value in that order, and returns CAGR directly.

Google Sheets supports both forms. If you are working with start and end dates instead of a year count, use =(B2/A2)^(1/((End_Date - Start_Date)/365.25))-1 so partial years are handled correctly. For larger portfolios with multiple deposits and withdrawals, switch to =XIRR(values, dates), which is the cash-flow-aware cousin of CAGR.

Three worked CAGR examples

Examples make the math click. Each scenario uses real numbers and shows the working out, so you can copy the pattern into your own spreadsheet for a quick cagr example template.

Example 1: Stock portfolio over 5 years

You invested $25,000 in a low-cost index fund in 2021. By 2026 it is worth $39,150. There were no deposits or withdrawals.

CAGR = (39,150 / 25,000)^(1/5) - 1 = 1.566^0.2 - 1 = 1.0939 - 1 = 0.0939, or 9.39% per year. This cagr 5 years figure is roughly in line with long-term US equity returns. Compare your own number against benchmarks before celebrating or panicking.

Example 2: Small business revenue

Your bakery did $180,000 in revenue in year 1 and $612,000 in year 4 (so n = 3 full years of growth).

CAGR = (612,000 / 180,000)^(1/3) - 1 = 3.4^(1/3) - 1 = 1.5037 - 1 = 0.5037, or 50.37% per year. That is venture-backed startup territory. Pair this with our ROI calculator and profit margin calculator to make sure top-line growth is also producing real profit.

Example 3: Real estate flip

You bought a duplex for $310,000 and sold it 18 months later for $402,000. Here n is 1.5 years, not 2.

CAGR = (402,000 / 310,000)^(1/1.5) - 1 = 1.2968^0.6667 - 1 = 0.1888, or 18.88% per year. Notice how plugging n = 2 by mistake would have understated CAGR to about 13.9% and made the deal look weaker than it really was.

CAGR vs average return: why they disagree

Cagr vs average return is one of the most misunderstood pairs in finance. The arithmetic average treats each year independently; CAGR respects the compounding chain. Whenever returns are volatile, CAGR will be lower than the average. The bigger the swings, the bigger the gap. This is sometimes called the volatility drag.

Year	Annual return	Balance from $10,000
1	+40%	$14,000
2	-20%	$11,200
3	+15%	$12,880
Average return	+11.67%	-
CAGR	+8.81%	$12,880

The simple average says you earned 11.67% per year. The honest CAGR says 8.81% per year. Always quote CAGR when comparing investments, especially across different volatility profiles. For long-horizon savings and retirement projections, use CAGR in our investment calculator and retirement calculator, not the simple average.

Reverse CAGR: working backward to a future value

Reverse cagr flips the formula on its head. Instead of solving for the rate, you solve for the future value given a target rate and time horizon. The formula is Future Value = Beginning Value x (1 + CAGR)^n.

For example, if you have $50,000 today and assume an 8% CAGR for 20 years, the projected balance is 50,000 x 1.08^20 = $233,047. This is the engine behind almost every retirement projection, including 401(k) projections, Roth IRA projections, and the millionaire calculator. It is also how to set a realistic savings goal in our monthly savings goal guide.

Common CAGR mistakes to avoid

Most CAGR errors come from sloppy inputs, not sloppy math. Here are the four that show up most often in real spreadsheets:

Counting years wrong. From January 2021 to January 2026 is 5 years, not 6. Subtract the start year from the end year, do not count the years on your fingers.
Mixing cash flows. CAGR assumes no deposits or withdrawals during the period. If you added money along the way, use IRR or XIRR instead. The same caution applies when measuring the return on rental properties with ongoing repairs.
Cherry-picking the start date. Picking a market low as your starting point inflates CAGR. Always disclose the exact start and end dates so the figure is verifiable.
Ignoring inflation. A nominal 7% CAGR with 3% inflation is a real CAGR of about 3.88%. Run your number through an inflation calculator if you need the true purchasing-power growth.

Advanced CAGR tips

Once you have the basics nailed, these techniques will sharpen your analysis:

Use rolling CAGR. Instead of one start and end point, calculate CAGR over every rolling 5-year or 10-year window. This reveals consistency, not just averages.
Compare CAGR to a benchmark. A 9% CAGR is great in cash but mediocre against the S&P 500. Always state the benchmark you are comparing against.
Split nominal and real CAGR. Nominal CAGR uses raw dollar values. Real CAGR adjusts for inflation. Both have their place; just label which one you are quoting.
Pair CAGR with risk. A 15% CAGR with 40% volatility is not necessarily better than a 9% CAGR with 12% volatility. Always look at the path, not just the endpoints.
Use CAGR for goal setting. Plug your target CAGR into future value or present value calculators to back into how much you need to invest today.

Related concepts worth knowing

CAGR sits inside a small family of return metrics. Knowing when to use each one keeps you from misquoting performance.

APY: the annual percentage yield on savings, which already factors in compounding within the year. Our APY calculator and CD calculator use the same exponential logic as CAGR.
IRR: handles uneven cash flows over time. Pair it with CAGR when you have multiple contributions.
Total return: the full percentage change from BV to EV, with no annualization. CAGR is just total return spread evenly across years.
Simple interest: ignores compounding entirely. See our simple interest calculator to feel the difference.
Doubling time: approximated by 72 divided by your CAGR. A 9% CAGR doubles money in about 8 years.

For a full library of money math, browse the business calculators, savings calculators, and retirement calculators sections. Each one has the same compounding engine that powers CAGR.

Putting it all together

CAGR is the single cleanest way to describe long-run growth. It compresses years of noise into one rate you can compare across investments, businesses, and personal goals. The formula is short, the Excel function is shorter, and the worked examples in this guide give you templates you can drop into your own spreadsheet today. If you mostly remember one thing, remember this: divide, exponentiate by 1/n, and subtract 1.

Ready to skip the math? Open the free CAGR calculator on TheMoneyCalcs, plug in your beginning value, ending value, and number of years, and get a clean annualized growth rate plus a year-by-year breakdown in seconds. Bookmark it next to our investment calculator and compound interest calculator so every long-term money decision you make starts with honest numbers.

Try it yourself

Run your own numbers in the free CAGR Calculator — instant, private, no sign-up.

Open the CAGR Calculator →

Frequently asked questions

What is the simple formula for CAGR?: CAGR = (Ending Value / Beginning Value)^(1 / Number of Years) - 1. Multiply the result by 100 to express it as a percentage. This single formula works for any investment, business revenue, or savings balance measured over more than one year.
How do I calculate CAGR in Excel?: Use either =(End/Start)^(1/Years)-1 formatted as a percentage, or the built-in =RRI(Years, Start, End). RRI is preferred because it handles the math internally and returns the annualized growth rate directly. Google Sheets supports the same RRI function.
What is a good CAGR for an investment?: For US equities, a CAGR of 7% to 10% over 10+ years is considered solid, roughly matching long-run S&P 500 averages. For small businesses, 15% to 25% revenue CAGR is strong. Anything above 30% sustained for 5 years is rare and usually unsustainable.
What is the difference between CAGR and average annual return?: Average annual return is the arithmetic mean of yearly returns and ignores compounding, so volatile years inflate it. CAGR is the geometric mean and reflects the actual smoothed rate that turns the starting value into the ending value. CAGR is almost always lower than the simple average.
Can CAGR be negative?: Yes. If the ending value is lower than the beginning value, CAGR will be negative, indicating an annualized loss. For example, $10,000 falling to $8,000 over 3 years gives a CAGR of about -7.17% per year.
How do I calculate CAGR for 5 years?: Divide the value at the end of year 5 by the value at the start of year 1, raise that to the 1/5 power, then subtract 1. If $20,000 grew to $32,210 in 5 years, CAGR = (32210/20000)^(0.2) - 1 = 10.0% per year.
What is reverse CAGR and how do I use it?: Reverse CAGR works backward: you supply a starting amount, a target CAGR, and a number of years, and solve for the future value. Formula: Future Value = Start x (1 + CAGR)^Years. It is useful for goal setting, such as projecting retirement balances.
Does CAGR account for deposits or withdrawals?: No. CAGR assumes a single starting amount with no cash flows in or out. If you add or withdraw money during the period, you should use IRR (internal rate of return) or XIRR in Excel instead, which handle uneven cash flows correctly.
Is CAGR the same as compound interest?: They are closely related but not identical. Compound interest is a forward-looking calculation given a known rate. CAGR is a backward-looking measure that reverse-engineers the equivalent constant compounding rate from a known start and end value. Both rely on the same exponential math.
How is CAGR different from IRR?: CAGR assumes one inflow at the start and one outflow at the end. IRR handles multiple cash flows on different dates. If you invested $5,000 in year 1, $3,000 in year 2, and withdrew $12,000 in year 5, you should use IRR or XIRR, not CAGR.
Why does CAGR smooth out volatility?: CAGR ignores the path between the start and end values and only measures the equivalent constant rate. A stock that gained 50%, lost 30%, and gained 20% in three years has the same CAGR as one that grew at a steady single-digit rate to reach the same end value.
How many years do I need to calculate CAGR?: You need at least one full year between the beginning and ending values. CAGR is most meaningful over 3 to 10 years because shorter periods are dominated by noise and longer periods can hide structural changes in the underlying investment or business.
Should I use CAGR for monthly or daily data?: You can, but you must convert n into years. For 36 months, n = 3. For 730 days, n = 2. CAGR is, by definition, an annualized rate, so any time unit must first be expressed as a fraction of a year before plugging into the formula.

Muhammad Zohaib AmeerFounder & Personal Finance Researcher

Muhammad Zohaib Ameer is the founder of The Money Calcs. He personally builds, tests and researches every calculator and guide on the site — translating the standard financial formulas used by banks and lenders into free, plain-English tools. His focus is accuracy and clarity: helping everyday people understand mortgages, loans, savings, investing, retirement and debt without jargon, sign-ups or sales pitches.