What is CAGR?

CAGR refers to the mean annual growth of an investment over a specific duration. The value of the investment is assumed to be compounded over the period. Unlike the absolute return, CAGR takes the time value of money into the account. As a result, it can reflect the actual returns of an investment generated over a year.


CAGR or Compound Annual Growth Rate shows you how an investment grows in value over a period. In simple words, it shows you how much your investment has earned each year for a given time interval.

What is a CAGR Calculator?

The CAGR calculator is a utility tool to calculate the compound annual growth rate of your investment over some time. You will have to enter the value of the initial investment, the expected final value of the investment and the number of years to calculate the CAGR.


The CAGR calculator has a formula box where you select the beginning and the ending value of the investment. You must also select the number of years of the investment. The CAGR calculator will show you the annual rate of growth of your investment. You can use CAGR to compare the return on investment against a benchmark.


How Does a CAGR Calculator Work?

The CAGR can be calculated using the following mathematical formula:


CAGR = [(Ending Value/Beginning Value) ^ (1/N)]-1


CAGR Compound Annual Growth Rate

Beginning Value of the Investment

Number of Years of Investment

N Number of Years of Investment

The above formula depends on three variables, namely, the beginning value, the ending value, and the number of years (N).


When you enter the three variables, the CAGR calculator will give you the rate of return on the investment.


For example, the initial value of your investment is Rs 15,000, and the final value is Rs 25,000 in three years (N= 3 years).


CAGR is calculated as: CAGR = (25,000/15,000)^(⅓) – 1


CAGR = 18.56%.


You can also calculate the absolute return of the investment using the CAGR calculator:


End Value – Beginning Value/Beginning Value * 100


For the same example you have:


(25000 – 15000)/15000 * 100 = 66.66%