What Is CAGR?
CAGR, or compound annual growth rate, is the steady yearly growth rate that would take you from a starting value to an ending value over several years.
A simple example
An investment grows from $1,000 to $2,000 in 10 years. It did not grow evenly; some years were up, some down. But its CAGR is about 7.2%: growing 7.2% every year would turn $1,000 into $2,000 in 10 years.
How to calculate CAGR
(End ÷ Start)^(1 ÷ Years)−1=CAGR
Most people use an online calculator or a spreadsheet for this.
Why CAGR beats a simple average
If a stock rises 50% one year and falls 50% the next, the simple average says 0%. But $100 became $150, then $75. You lost money. CAGR shows the real result: about −13% a year.
Where you see it
Companies use CAGR for revenue growth. Investors use it to compare returns over time. It ties closely to compound interest.
Related terms
Compound interestGrowth that earns more growth.
RevenueAll the money a company takes in from sales.
Discounted cash flowValuing a company from its future cash.
Growth investingBuying companies that grow fast.
S&P 500500 large US companies in one index.
Dollar-cost averagingInvesting the same amount on a regular schedule.