Compound Growth Calculator — Free Online Tool

How to Use the Compound Growth Calculator

This calculator determines the Compound Annual Growth Rate (CAGR) between two values over a specified number of years. CAGR is the gold standard metric for measuring investment performance, business growth, and any value that changes over time.

1. Enter the starting value. This is the initial value at the beginning of the period you want to measure. For investments, this is the amount you originally invested. For business metrics, it could be first-year revenue, user count, or any measurable quantity. The starting value must be greater than zero.
2. Enter the ending value. This is the final value at the end of the measurement period. If the ending value is greater than the starting value, the CAGR will be positive (growth). If it is smaller, the CAGR will be negative (decline). Both scenarios provide valuable information for decision-making.
3. Set the number of periods. Enter how many years elapsed between the starting and ending values. For partial years, use decimals (for example, 18 months = 1.5 years). The period length significantly affects the calculated CAGR because the same total return spread over more years produces a lower annualized rate.
4. Review the results. The calculator displays the CAGR percentage, total return in dollars and percent, doubling time via the Rule of 72, and a projection table showing where the starting value would reach at the calculated growth rate over various future time horizons.

Use CAGR to compare the performance of different investments that have different time periods. A 50% total return over 3 years (14.5% CAGR) is actually better than a 60% return over 5 years (9.9% CAGR), even though the total return is smaller.

CAGR Formula and Calculation

The CAGR formula converts any growth over any period into an equivalent constant annual rate. This makes it possible to compare growth rates across different timeframes and investments on an equal basis.

Where each variable represents:

• End Value = The final value at the end of the period
• Start Value = The initial value at the beginning of the period
• n = Number of years (periods)

Step-by-Step Calculation Example

Calculate the CAGR for an investment that grew from $15,000 to $42,000 over 8 years:

1. Identify values: Start = $15,000, End = $42,000, n = 8 years
2. Calculate the ratio: $42,000 / $15,000 = 2.8
3. Apply the exponent: 2.8^(1/8) = 2.8^0.125 = 1.1375
4. Subtract 1: 1.1375 − 1 = 0.1375
5. Convert to percentage: CAGR = 13.75%
6. Total return: $42,000 − $15,000 = $27,000 (180% total return)
7. Doubling time: 72 / 13.75 = 5.24 years
8. Verification: $15,000 × (1.1375)⁸ = $42,000

This investment delivered a 13.75% compound annual growth rate, which is strong by historical standards and better than the S&P 500 long-term average of approximately 10%. The Rule of 72 tells us this growth rate would double the investment approximately every 5.2 years.

Practical CAGR Examples

These real-world scenarios demonstrate how CAGR applies to investment analysis, business evaluation, and personal financial planning.

Comparing Two Investment Funds

David invested $20,000 in Fund A five years ago, and it is now worth $31,000. He also invested $15,000 in Fund B three years ago, now worth $21,500. Which fund performed better? Fund A: CAGR = ($31,000/$20,000)^1/5 - 1 = 9.16%. Fund B: CAGR = ($21,500/$15,000)^1/3 - 1 = 12.76%. Despite Fund A having a larger dollar gain ($11,000 vs $6,500), Fund B delivered a substantially higher annual growth rate. David decides to allocate more of his future contributions to Fund B strategy, understanding that the higher CAGR will compound to larger returns over his remaining 25-year investment horizon.

Evaluating Home Price Appreciation

The Torres family purchased their home for $280,000 in 2014 and it was appraised at $485,000 in 2024 (10 years later). The CAGR of their home value is ($485,000/$280,000)^1/10 - 1 = 5.65%. This means their home appreciated at an average of 5.65% per year, which is above the national average of approximately 3.5% but reasonable for a growing metro area. Knowing this CAGR helps them evaluate whether their home equity is outperforming other potential investments and informs their decision about whether to sell, refinance, or hold.

Business Revenue Growth Analysis

Sophia runs an e-commerce business that generated $120,000 in revenue during its first year and $890,000 by year five. The revenue CAGR is ($890,000/$120,000)^1/4 - 1 = 65.2% (note: 4 years of growth between year 1 and year 5). This rapid CAGR helps Sophia benchmark against industry peers, set realistic projections for investor presentations, and plan hiring and inventory. If she maintains even a 30% CAGR going forward, revenue would reach approximately $2.4 million by year eight, informing her capacity planning decisions.

Retirement Portfolio Assessment

Robert started his 401(k) with $5,000 twelve years ago and it has grown to $48,000 through a combination of contributions and market returns. However, his total contributions were $30,000, so the investment portion grew from $5,000 to $18,000 through market returns alone. The CAGR of his investment gains is ($18,000/$5,000)^1/12 - 1 = 11.2%. This tells Robert his investment selections have performed above the market average, validating his asset allocation strategy. He uses this CAGR to project his retirement balance 20 years from now.

CAGR Tips and Complete Guide

Understanding CAGR is essential for making informed investment decisions, evaluating business performance, and setting realistic financial goals. These guidelines will help you apply CAGR effectively.

Use CAGR for Apples-to-Apples Comparisons

CAGR eliminates the distortion caused by different time periods when comparing investments. A 3-year investment returning 45% total and a 10-year investment returning 100% total might seem similar, but their CAGRs tell a different story: 13.2% vs 7.2%. The shorter investment grew faster annually and, if sustained, would produce dramatically better results over 20+ years. Always convert total returns to CAGR before comparing investments with different holding periods.

Understand CAGR Limitations

CAGR smooths out volatility, which can be both a strength and a weakness. An investment that returns +30%, -20%, +25%, -15%, +20% over five years has a CAGR of approximately 6.4%, but the ride was quite volatile. Two investments with the same CAGR can have very different risk profiles. When evaluating investments, combine CAGR with a measure of volatility (like standard deviation) to get a complete picture. A lower CAGR with less volatility may actually be preferable for risk-averse investors or those nearing retirement.

Apply CAGR to Personal Financial Planning

Use CAGR to set retirement targets by working backward. If you want $2,000,000 in 30 years and have $50,000 today, you need a CAGR of 12.9% (without additional contributions). That is aggressive. Adding $500 per month in contributions changes the equation significantly, reducing the required CAGR. Calculate your historical portfolio CAGR, compare it to your required CAGR, and adjust your strategy if there is a gap. This framework turns abstract retirement goals into concrete, actionable plans.

CAGR in Business Valuation

Revenue CAGR is one of the most important metrics for evaluating growth companies. A SaaS company growing revenue at 40% CAGR is valued very differently from one growing at 10%. Investors typically pay 10-20x revenue for 40%+ CAGR companies and 3-5x revenue for 10-15% CAGR companies. If you are an entrepreneur, tracking your three-year and five-year revenue CAGR helps you understand your trajectory and communicate growth effectively to investors, lenders, and potential acquirers.

Common Mistakes to Avoid

• Confusing CAGR with average return. An investment that doubles in year one and halves in year two has a 0% CAGR but a 0% average return that misleadingly sounds fine. CAGR always reflects the true end-to-end growth, while arithmetic averages can mask reality. Use CAGR for historical performance measurement and forward projections.
• Extrapolating short-term CAGR indefinitely. A stock that grew from $10,000 to $15,000 in one year (50% CAGR) almost certainly will not maintain that rate for 20 years. Short-period CAGRs are heavily influenced by timing and market conditions. Use at least 5-year periods for meaningful CAGR analysis, and 10+ years for long-term projections. The longer the measurement period, the more reliable the CAGR is as a predictor.
• Ignoring the starting and ending point sensitivity. CAGR is highly sensitive to the exact starting and ending values. If you measure from a market bottom to a market top, the CAGR will be inflated. If you measure peak-to-trough, it will be deflated. Try calculating CAGR from multiple starting points (beginning, middle, and end of the first year) to see how sensitive your result is to timing.
• Not adjusting for inflation. A nominal CAGR of 8% during a period of 4% inflation represents only 3.85% real growth. For long-term planning (10+ years), always calculate or at least consider the real CAGR to understand actual purchasing power growth. The difference between nominal and real CAGR becomes enormous over decades.
• Using CAGR alone for decision-making. CAGR tells you the what but not the why or the how risky. Supplement CAGR analysis with understanding the maximum drawdown, volatility, and whether the growth was driven by sustainable factors. A 12% CAGR achieved through steady 10-14% annual returns is far more reliable than one achieved through wild swings of +50% and -30%.