Calculate the Compound Annual Growth Rate between an initial and final value.
CAGR = ((Final Value / Initial Value)^(1 / Years) − 1) × 100. CAGR smooths out the ups and downs of individual years into a single constant annual growth rate — it's the rate that, if applied every year, would take the initial value to the final value over the given period.
CAGR is most useful when you need to put two very different investments on equal footing. A stock that went up 60% one year and down 20% the next didn't grow at a steady 20% a year — CAGR tells you what the actual smoothed annual rate was, which is the number worth comparing against a mutual fund, a fixed deposit, or an index benchmark. Investors use it to evaluate mutual fund fact sheets, where 3-year, 5-year, and 10-year CAGR figures are standard, and to sanity-check whether a fund's marketed "average return" is masking a volatile ride. It's equally useful outside the stock market: comparing the growth of a rental property's value over a decade, checking whether a business's revenue grew as fast as its founders claim, or comparing your own portfolio's growth against inflation to see if you actually got richer in real terms. One caveat worth remembering — CAGR only looks at the start and end values, so it can make a volatile investment look smoother than it actually felt to hold.
CAGR = ((Final Value / Initial Value)^(1 / Years) − 1) × 100. It expresses growth over multiple years as a single smoothed annual percentage.
No. A simple average of yearly returns can be misleading because it ignores compounding. CAGR gives the single constant rate that would take the initial value to the final value over the period.
Yes — if the final value is lower than the initial value, CAGR will be negative, reflecting an overall decline over the period.