What is CAGR and How to Calculate it: Compound Annual Growth Rate

By Equipe Suite Calculadoras 7/9/2026

What is CAGR and How to Calculate: Compound Annual Growth Rate Complete Guide

CAGR (Compound Annual Growth Rate) is the standard metric used to express the growth of any financial quantity over time in a smoothed and comparable way. It is widely used by investors, financial analysts and business managers to evaluate the performance of investments, company revenues, markets and portfolios.

But what exactly does CAGR measure? Why is it more useful than the simple growth rate? And in what situations should (or shouldn't) you use it? This guide answers everything with practical examples. Use our CAGR Calculator to calculate any scenario.

What is CAGR?

CAGR represents the hypothetical uniform annual growth rate that an investment or metric would need to have to grow from a starting value to a ending value over a given number of years, assuming that the growth is reinvested each period.

In other words: CAGR "smooths out" the volatility of annual results and delivers a single number that represents the compounded average annual growth over the entire period.

Intuitive example:

  • Year 0: $ 100.000
  • Ano 1: $ 80,000 (decreased 20%)
  • Year 2: $ 150.000 (subiu 87,5%)
  • Ano 3: $ 130,000 (decreased 13.3%)

The year-to-year growth rate varied enormously. CAGR calculates that a single rate, applied for 3 years, would transform $ 100.000 em $ 130,000 → CAGR ≈ 9.14% per year.

The CAGR Formula

CAGR = [(Final Value ÷ Initial Value)^(1 ÷ Number of Years)] − 1

Or in mathematical notation:

CAGR = (VF / VI)^(1/n) − 1

Where:

  • VF = Final Value (at the end of the period)
  • VI = Initial Value (at the beginning of the period)
  • n = Number of years in the period
  • The result is in decimal (multiply by 100 to get the percentage)

Practical Examples of CAGR Calculation

Example 1: CAGR of an Investment

Situation: You invested $ 20.000,00 em um fundo de ações em 2020. Em 2026 (6 anos depois), o fundo vale $ 42,000.00.

Calculation:

  • CAGR = (42,000 ÷ 20,000)^(1/6) − 1
  • CAGR = (2.10)^(0.1667) − 1
  • CAGR = 1.1318 − 1
  • CAGR = 13.18% per year

Interpretação: O fundo cresceu 13,18% ao ano em média, no período composto. Isso supera a inflação e o CDI médio do período, indicando bom desempenho.

Example 2: CAGR of a Company's Revenue

Situação: Uma startup tinha receita de R$ 800.000 em 2021 e atingiu R$ 5.400.000 em 2026 (5 anos).

Calculation:

  • CAGR = (5,400,000 ÷ 800,000)^(1/5) − 1
  • CAGR = (6.75)^(0.20) − 1
  • CAGR = 1.4620 − 1
  • CAGR = 46.2% per year

Interpretação: Um CAGR de 46% ao ano é considerado crescimento de alta performance no universo das startups. Investidores de venture capital tipicamente buscam empresas com CAGR acima de 40% no early stage.

Example 3: Property Price CAGR

Situação: Apartamento comprado em 2018 por R$ 280.000,00 e avaliado em R$ 410.000,00 em 2026 (8 anos).

Calculation:

  • CAGR = (410,000 ÷ 280,000)^(1/8) − 1
  • CAGR = (1.4643)^(0.125) − 1
  • CAGR = 1.0490 − 1
  • CAGR = 4,90% ao ano

Interpretation: The property appreciated 4.90% per year — below inflation (IPCA) for much of this period, which means negative appreciation in real terms. Comparar com outros ativos no mesmo período revela o custo de oportunidade.

CAGR to Calculate Future Goals

You can also use the CAGR formula in reverse to calculate what growth rate is needed to reach a goal:

Situation: Your company has current revenue of $ 1.200.000 e quer atingir $ 5,000,000 in 4 years.

What CAGR is needed?

  • CAGR = (5,000,000 ÷ 1,200,000)^(1/4) − 1
  • CAGR = (4.167)^(0.25) − 1
  • CAGR = 1.4289 − 1
  • CAGR = 42.9% per year

Knowing the target, you can now assess whether growth of 42.9% per year is realistic for your market and build the strategic plan based on this rate.

Table: CAGR of $100,000 per Rate and Term

CAGR / Term 5 years 10 years 20 years 30 years
5% per year $ 127.628 $ 162,889 $ 265.330 $ 432.194
10% per year $ 161.051 $ 259,374 $ 672.750 $ 1,744,940
15% per year $ 201.136 $ 404,556 $ 1.636.654 $ 6,621,177
20% per year $ 248.832 $ 619.174 $ 3.833.760 $ 23,737,631
30% per year $ 371.293 $ 1,378,584 $ 19,004,963 —

The long-term impact of the rate is exponential — the difference between 10% and 20% per year over 30 years is more than $ 22 milhões sobre $ 100,000 initial.

CAGR vs. Simple Growth Rate vs. Arithmetic Mean

Metric How to Calculate When to Use
CAGR Uniform annual compound rate (geometric) Evaluate growth of investments, companies, markets
Arithmetic Average of Rates Sum of fees ÷ number of years Evaluate average growth year on year (does not consider composition)
Simple Fee (VF − VI) ÷ VI × 100 Total growth for the period (without annualizing)

Why the arithmetic mean can be misleading:

  • Year 1: +100% → $ 100 vira $ 200

  • Year 2: −50% → $ 200 vira $ 100

  • Arithmetic mean: (100% − 50%) ÷ 2 = 25% per year

  • Actual CAGR: (100 ÷ 100)^(1/2) − 1 = 0% (back to the beginning!)

The arithmetic mean overestimated performance. The CAGR revealed the reality: zero growth.

Limitations of CAGR

CAGR is useful but has important blind spots:

  1. Ignores path volatility: Two investments with the same CAGR may have had completely different trajectories — one stable and the other with drops of 50% along the way.

  2. Assumes full reinvestment: CAGR assumes that all returns are reinvested. If you withdraw part of the profits over the period, the actual result will be different.

  3. Sensitive to start and end point: A CAGR calculated at a market peak to bottom, or vice versa, can distort the reality of historical performance.

  4. Does not capture non-linear growth: In exponentially accelerating startups, early years CAGR may underestimate future growth.

Practical Applications of CAGR

For Investors

  • Compare the performance of different funds, stocks or assets over the same period
  • Evaluate whether a fund manager is outperforming the benchmark (e.g. IBOVESPA, CDI)
  • Calculate how much an asset will grow at a given rate for X years

For Business Managers

  • Present revenue, profit or customer base growth to investors
  • Define multi-year growth goals in strategic planning
  • Benchmarking against competitors and industry averages

For the M&A Market (Mergers and Acquisitions)

  • Evaluate the historical growth of the target company
  • Project future revenues based on adjusted historical CAGR
  • Calculate valuation by growth multiples

Frequently Asked Questions (FAQ)

1. What is a good CAGR for an investment? It depends on the benchmark and the risk. In Brazilian fixed income (CDI ≈ 10-12% per year in 2026), a CAGR of 15-20% in equities is already considered good. In startups, CAGRs above 40% are expected for the first few years. For residential properties in Brazilian capitals, historical CAGRs range between 4-8% per year.

2. Are CAGR and IRR the same thing? Not exactly. CAGR is calculated based on just two points — the initial value and the final value — assuming uniform growth. The IRR (Internal Rate of Return) considers all intermediate cash flows (dividends, partial contributions, withdrawals), being more accurate for assets that generate returns over the period.

3. How to calculate the CAGR of a stock that paid dividends? To include dividends, use Total Return (final price + accumulated dividends received) as Final Value. Example: share purchased for $ 40, vendida por $ 55 after 3 years with $ 8 de dividendos recebidos → Valor Final = $ 63 → CAGR = (63/40)^(1/3) − 1 ≈ 16.4% per year.

4. Can CAGR be used to project the future? Yes, with caution. Applying historical CAGR as a projection rate assumes that past conditions will repeat themselves in the future — which is rarely certain in dynamic markets. Use it as a starting point and apply scenarios (optimistic, base and pessimistic) adjusting the rate according to the sector's perspectives.

5. What is the historical CAGR of IBOVESPA? IBOVESPA has a long-term historical CAGR (last 3 decades) of around 18-25% per year in nominal terms (in reais). Discounting inflation, the real return is much lower — close to 8-12% per year. Volatility, however, is significant — with drops of 40-60% in crisis years.

6. How to use CAGR to define my company's growth target? Define the value the company has today (revenue, users, market share) and the value it wants to achieve in X years. Apply the formula CAGR = (Vf/Vi)^(1/n) − 1. Compare with industry CAGR to assess whether the target is aggressive or conservative, and use it to break down the annual growth needed into concrete strategies.

7. Is negative CAGR possible? Yes. A negative CAGR indicates that the final value is lower than the initial value — that is, there was destruction of value over the period. This occurs in investments that have declined (shares in bankrupt companies, properties in depreciated regions, poorly managed funds). A CAGR of −10% per year over 10 years reduces capital by 65%.

8. Como calcular o CAGR quando há aportes intermediários? Para períodos com aportes regulares (ex: investimento mensal em fundo), o CAGR simples não é adequado. Use a TIR mensal para capturar o impacto dos fluxos intermediários. Nossa Calculadora de Juros Compostos suporta aportes mensais e permite ver o montante acumulado por período.

Calculate the CAGR of Your Investments

Whether evaluating past performance or projecting future growth, CAGR is the most direct and comparable metric.

Access our CAGR Calculator — enter start and end values ​​and period to get CAGR instantly.

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