Compound Annual Growth Rate (CAGR) Calculator for Excel

A simple tool for calculating the smoothed annualized growth rate of your investments or business metrics.

Compound Annual Growth Rate (CAGR)

0.00%

What is Compound Annual Growth Rate (CAGR)?

The Compound Annual Growth Rate (CAGR) is a business and investing specific term that provides a constant rate of return over a time period. Put simply, it tells you the average annual rate at which an investment or a business metric grew, assuming the growth was compounded each year. It’s often called a “smoothed” rate of return because it measures the growth as if it occurred at a steady rate, removing the effects of volatility. This makes it one of the most accurate ways to assess how an investment has performed over time. For anyone regularly calculating compound annual growth rate using excel, this concept is fundamental.

CAGR Formula and Explanation

The formula for calculating CAGR is straightforward and powerful for both financial analysis and when working in spreadsheets like Excel. The standard CAGR formula is:

CAGR = (Ending Value / Beginning Value) ^ (1 / Number of Periods) – 1

This formula is the bedrock of calculating compound annual growth rate using excel or any other tool.

CAGR Formula Variables

Variable	Meaning	Unit	Typical Range
Ending Value (EV)	The value of the investment at the end of the period.	Currency, Users, Revenue, etc.	Positive Number
Beginning Value (BV)	The value of the investment at the start of the period.	Currency, Users, Revenue, etc.	Positive Number
Number of Periods (N)	The total number of compounding periods (usually years).	Years	Greater than 0

To learn more about how to structure your data, consider our guide on creating an Excel growth formula.

Practical Examples

Example 1: Company Revenue Growth

A startup had a revenue of $500,000 in 2021. By the end of 2025, its revenue grew to $2,000,000. The period is 4 years.

• Inputs: Beginning Value = 500,000, Ending Value = 2,000,000, Number of Years = 4
• Calculation: CAGR = (2,000,000 / 500,000)^(1/4) – 1 = 4^(0.25) – 1 = 1.414 – 1 = 0.414
• Result: The CAGR is 41.4%. This shows the company’s revenue grew at an average annual rate of 41.4% over those four years.

Example 2: Personal Investment

An individual invested $10,000 into a mutual fund. After 7 years, the investment is worth $22,500.

• Inputs: Beginning Value = 10,000, Ending Value = 22,500, Number of Years = 7
• Calculation: CAGR = (22,500 / 10,000)^(1/7) – 1 = 2.25^(0.1428) – 1 = 1.123 – 1 = 0.123
• Result: The investment had a CAGR of 12.3%. Comparing this to our investment return calculator can provide deeper insights.

How to Use This CAGR Calculator and in Excel

Using this calculator is simple:

1. Enter the Beginning Value: The initial amount of your investment or metric.
2. Enter the Ending Value: The final amount after the period has passed.
3. Enter the Number of Years: The length of the investment period.
4. The result is automatically calculated and displayed, along with a growth chart.

To perform the same calculation in Excel, you can use the same formula directly. If your Beginning Value is in cell A1, Ending Value in B1, and Number of Years in C1, the Excel formula would be: =(B1/A1)^(1/C1)-1. For more complex scenarios, you can also use Excel’s RATE or RRI functions.

Key Factors That Affect CAGR

• Time Horizon: Longer periods tend to smooth out volatility, providing a more reliable CAGR. A short period might give a misleadingly high or low rate.
• Market Volatility: CAGR assumes steady growth, but real-world markets fluctuate. High volatility can be hidden by the smoothed CAGR figure.
• Initial and Final Values: The calculation is highly sensitive to the start and end points. A single good or bad year at the beginning or end can dramatically skew the result.
• Reinvestment of Profits: The CAGR formula inherently assumes that all profits are reinvested. If profits are withdrawn, the actual return will be lower.
• Additional Contributions/Withdrawals: The basic CAGR formula does not account for adding or removing funds during the period. For that, a more complex calculation like Internal Rate of Return (IRR) is needed. Compare CAGR vs IRR with our guide on understanding IRR.
• Inflation: CAGR calculates a nominal return. To understand real growth, you should compare the CAGR to the inflation rate over the same period. Our inflation calculator can help.

Frequently Asked Questions (FAQ)

What does CAGR mean?

CAGR stands for Compound Annual Growth Rate. It measures the mean annual growth rate of an investment over a specified period longer than one year.

What is a good CAGR?

A “good” CAGR is relative and depends on the industry, risk, and market conditions. Generally, a CAGR that beats industry benchmarks and inflation is considered strong. For example, 8-12% might be good for a large company, but low for a venture capital investment.

How do I calculate CAGR in Excel if values are not in adjacent cells?

You can still use the direct formula =(B10/A2)^(1/C5)-1 by replacing the cell references with the correct ones for your ending value, beginning value, and number of years, respectively.

Can CAGR be negative?

Yes. If the ending value is less than the beginning value, the CAGR will be negative, indicating an average annual loss over the period.

What is the difference between CAGR and simple growth?

Simple growth (or absolute return) is the total percentage increase from start to finish, ignoring the time period. CAGR provides an annualized, compounded rate, making it better for comparing different investments over different timeframes.

Why does Excel’s RATE function need a negative present value?

Financial functions in Excel like RATE, PV, and FV follow a cash flow convention. Money you pay out (like an initial investment) is represented as a negative number, and money you receive (like the final value) is positive. This is why the `pv` argument in the RATE function should be negative for calculating CAGR.

Is a higher CAGR always better?

Not necessarily. A very high CAGR might indicate a very high-risk investment. It’s crucial to consider the volatility and risk alongside the growth rate. A specialized stock growth calculator might provide more context.

Does CAGR account for dividends?

The standard CAGR calculation using only beginning and ending price does not. For a total return CAGR, the ending value must be adjusted to include reinvested dividends to reflect the true performance of the investment.