CAGR Formula

Finance Formula • Published on September 01, 2026 • Last updated September 01, 2026

Mathematical Equation

$$CAGR = \left(\frac{EV}{BV}\right)^{\frac{1}{n}} - 1$$

Variable Definitions

Ending Value of the investment

Beginning Value of the investment

Number of years (investment duration)

Detailed Explanation

In-Depth Guide

Compound Annual Growth Rate (CAGR) is the geometric progression ratio that provides a constant rate of return over a specified time period. It is one of the best tools for comparing investment returns across different assets (like mutual funds vs gold vs FDs) over multi-year horizons because it smooths out volatility.

How to Calculate: Step-by-Step

1. Obtain the beginning value of the investment ($BV$). 2. Obtain the ending value of the investment ($EV$). 3. Find the number of years ($n$). 4. Divide the ending value by the beginning value ($EV / BV$). 5. Raise this quotient to the power of $1 / n$. 6. Subtract 1 from the result. 7. Multiply by 100 to convert to a percentage.

Worked Calculation Example

An investor purchases shares worth $5,000. Five years later, the investment is sold for $10,000: - Beginning Value ($BV$) = $5,000 - Ending Value ($EV$) = $10,000 - Number of years ($n$) = 5 - Apply the formula: $$CAGR = \left(\frac{10,000}{5,000}\right)^{\frac{1}{5}} - 1 = (2)^{0.2} - 1$$ $$CAGR \approx 1.1487 - 1 = 0.1487 = 14.87\%\text{ per annum}$$

Common Use Cases

Evaluating mutual fund and stock portfolio historical performance
Comparing performance of different asset classes over the same period
Analyzing revenue growth rates of corporations over multiple years

Frequently Asked Questions

No. CAGR is a representative figure. It assumes the investment grew at a constant rate, smoothing out any volatility and year-on-year fluctuations in real market conditions.

CAGR only considers the start and end values, ignoring what happens in between (interim risk or volatility). It is also not suitable for investments with periodic additions (like SIPs) where XIRR (Extended Internal Rate of Return) is preferred.

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