CAGR Calculator

When assessing the historical performance of an investment portfolio, business revenue, or asset class, looking purely at absolute percentage returns can be profoundly misleading. If an investment rises 100% over 5 years, it did not grow by 20% every year.

Compound Annual Growth Rate (CAGR) represents the smoothed annual rate of return that would be required for an investment to grow from its initial beginning balance to its final ending balance, assuming all profits and dividends were reinvested at the end of each compounding period.

The mathematical formula for calculating CAGR is: CAGR = [ (Ending Value ÷ Beginning Value)^(1 ÷ n) ] - 1

Where:

• Ending Value (EV): The final valuation or sale price of the asset at maturity
• Beginning Value (BV): The initial principal capital deployed at inception
• n: The total investment duration expressed in years (or fractional years, such as 3.5 years)

• Absolute Return: Useful only for horizons under 1 year. For multi-year investments, absolute return ignores the time value of money.
• CAGR: Best suited for single point-in-time lump-sum investments (e.g. buying a property in 2015 and selling in 2024, or buying a single stock parcel).
• Critical Limitation of CAGR: CAGR cannot calculate returns for periodic cash inflows or outflows (such as monthly SIPs, interim dividend withdrawals, or staggered bonus purchases). In scenarios with multiple cash flows, XIRR (Extended Internal Rate of Return) must be used instead.