CAGR Calculator
Calculate the annual growth rate of an investment
CAGR Calculator: Measure the True Annual Growth of Investments
Understanding how an investment grows over time is essential for comparing performance across different assets. Simple returns often fail to show the real picture, especially when investments span multiple years. A CAGR Calculator helps solve this by converting total growth into a standardized annual growth rate.
CAGR, or Compound Annual Growth Rate, shows the average yearly growth of an investment assuming profits are reinvested each year.
What Is CAGR and Why It Matters
CAGR represents the smooth annual rate at which an investment would have grown from its initial value to its final value over a specific period. Unlike absolute returns, CAGR allows meaningful comparison between investments with different time horizons.
This makes it widely used in finance for evaluating mutual funds, stocks, portfolios, and long-term projects.
Inputs Required for CAGR Calculation
The calculator requires only three basic inputs.
| Input | Description |
|---|---|
| Initial Value | Investment value at the beginning |
| Final Value | Investment value at the end |
| Time Period | Total duration of the investment (in years) |
With these inputs, the calculator produces a clear annualized growth rate.
How the CAGR Calculation Works
The CAGR formula follows a simple mathematical structure.
| Step | Calculation Logic |
|---|---|
| Growth Ratio | Final Value ÷ Initial Value |
| Time Adjustment | Raise ratio to the power of (1 ÷ Years) |
| CAGR (%) | (Result − 1) × 100 |
This method removes volatility and presents growth as a steady annual rate.
Example CAGR Calculation
The table below illustrates a simple example of how CAGR is calculated.
| Initial Value | Final Value | Years | CAGR |
|---|---|---|---|
| ₹1,00,000 | ₹2,00,000 | 5 | 14.87% |
This example shows how doubling an investment over five years translates into a consistent annual growth rate.
Where CAGR Is Commonly Used
CAGR is widely applied across financial analysis and investment evaluation.
| Use Case | Purpose |
|---|---|
| Mutual funds | Compare long-term fund performance |
| Stocks | Measure historical growth |
| Portfolios | Evaluate overall portfolio returns |
| Business metrics | Track revenue or profit growth |
What CAGR Shows and What It Does Not
While CAGR is a powerful metric, it has certain limitations.
| CAGR Shows | CAGR Does Not Show |
|---|---|
| Average annual growth | Year-to-year volatility |
| Long-term performance trend | Interim gains or losses |
| Comparable growth rate | Risk or drawdowns |
Understanding these limits helps users interpret CAGR results correctly.
Who Should Use a CAGR Calculator
The CAGR Calculator is useful for:
| User Type | Benefit |
|---|---|
| Investors | Compare long-term investment returns |
| Analysts | Evaluate historical performance |
| Students | Learn financial growth concepts |
| Professionals | Assess business or revenue growth |
Key Takeaway
A CAGR Calculator provides a clear and consistent way to measure investment growth over time. By converting total returns into an annualized rate, it allows fair comparison between different investments and durations.
This makes CAGR an essential metric for long-term financial analysis and informed decision-making.
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