The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below is an overview of how to calculate it by hand, and in Excel.
Check out our full list of FAQs on calculating key financial measures in Microsoft Excel.
CAGR Defined
The concept of CAGR is relatively straightforward and requires only three primary inputs: an investment’s beginning value, ending value, and the time period. Online tools, including Investopedia’s CAGR calculator, will give the CAGR when entering these three values. The CAGR represents the growth rate of an initial investment assuming it is compounding by the period of time specified. Specifically, the formula is:
CAGR in Excel
The CAGR formula can be recreated in Excel. The formula to use is:
= ((FV/PV)^(1/n)) – 1
Where FV is the investment’s ending value, PV is its beginning value, and n is the # of years.
The XIRR function in Excel also calculates an internal rate of return (IRR) that can also be used to calculate the CAGR. The XIRR function is:
XIRR(values,dates, guess)
Again, what is needed are the beginning and ending investing values, and date periods. This function is more flexible as it can include multiple values and dates beyond just the ending and starting value. The one rub to this approach is the user must enter an estimated CAGR value, but this also helps intuitively understand the return values.
A Brief Example of the CAGR Calculation
Assume an investment’s beginning value is $1,000 and it grows to $5,000 in 10 years. The CAGR calculation is as follows:
= ((5,000/1,000)^(1/10)) – 1
The CAGR is 17.4% and details that the investment grew at this annual rate for a decade.
Limitations of the CAGR
The CAGR is superior to average returns because it considers the fact that investment returns compound over time. One limitation is that it assumes a smoothed return over the time period measured. In reality, investments experience significant shortterm ups and downs. CAGR is also subject to manipulation as the time period used can be controlled by the user. For instance, a fiveyear return period can be shifted by a year to avoid a negative period (such as 2008), or to include a period of strong performance (such as 2013).
The Bottom Line
The CAGR helps frame the steady rate of return of an investment over a certain period of time. It assumes the investment compounds over the period of time specified, and it is helpful for comparing investments with different returns across periods, as well as for comparing investments in different asset classes.
For more information on CAGR, check out What are the main differences between compound annual growth rate (CAGR) and internal rate of return (IRR)? and Why is the compound annual growth rate (CAGR) misleading when assessing longterm growth rates?

Why is the compound annual growth rate (CAGR) misleading when assessing longterm ...
The compound annual growth rate (CAGR) measures the return on an investment over a certain period of time. Below is an overview ... Read Answer >> 
What are the main differences between compound annual growth rate (CAGR) and internal ...
The compound annual growth rate (CAGR), measures the return on an investment over a certain period of time. The internal ... Read Answer >> 
How do you calculate CAGR?
Find out how to understand and use the compound annual growth rate formula, and find out why it helps put an uneven performance ... Read Answer >> 
How can I calculate the hurdle rate in Excel?
Learn how to evaluate potential investments. Common desktop software provides functions that can help make the decision with ... Read Answer >> 
What formula can I use to calculate interest on interest?
Find out more about compounding interest, what it measures and how to calculate the amount of compound interest accrued using ... Read Answer >>

Investing
Compound Annual Growth Rate: What You Should Know
The CAGR is a good and valuable tool to evaluate investment options, but it does not tell the whole story. 
Investing
The Most Accurate Way To Gauge Returns: The Compound Annual Growth Rate
The compound annual growth rate, or CAGR for short, represents one of the most accurate ways to calculate and determine returns for individual assets, investment portfolios and anything that ... 
Investing
Learn Simple And Compound Interest
Interest is defined as the cost of borrowing money, and depending on how it is calculated, can be classified as simple interest or compound interest. 
Financial Advisor
Compound Annual Growth Rate (CAGR)
The compound annual growth rate is an important tool for measuring investment performance and comparing it across asset classes. Discover how it is calculated and how it can inform your investment ... 
Managing Wealth
Morgan Stanley On the Trends in Asset Management (MS)
Learn about trends in the asset management industry and future prospects for its growth, according to a May 2016 Morgan Stanley report. 
Investing
5 Stock Market Metrics Explained
Learn how to evaluate a company's performance using metrics such as ROE, EPS and P/E ratio. 
Investing
Wearable Tech Market to Surpass $72B by 2021
The adoption of IoT technology and smart mobile devices worldwide will drive the wearable tech market expected to grow at a CAGR of 18.9% through 2021. 
Investing
How To Calculate Your Investment Return
How much are your investments actually returning? Find out why the method of calculation matters. 
Investing
Accelerating Returns With Continuous Compounding
Investopedia explains the natural log and exponential functions used to calculate this value. 
Investing
Calculating Future Value
Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.

Compound Annual Growth Rate  CAGR
The Compound Annual Growth Rate (CAGR) is the mean annual growth ... 
Average Annual Growth Rate  AAGR
The average increase in the value of an individual investment ... 
Compound Return
The rate of return, usually expressed as a percentage, that represents ... 
MAR Ratio
A measurement of returns adjusted for risk that can be used to ... 
Periodic Interest Rate
The interest rate charged on a loan or realized on an investment ... 
Effective Annual Interest Rate
Effective Annual Interest Rate is an investment's annual rate ...