CAGR: What is it and How to Calculate the Compound Annual Growth Rate
CAGR appears in management reports, investor presentations, fund analyzes and company projections — but many managers and investors still don't know how to calculate it correctly or interpret it critically. It is one of the simplest and most powerful metrics for measuring and comparing growth over time.
Use our CAGR Calculator to calculate the compound annual growth rate of any investment or company.
What is CAGR?
CAGR (Compound Annual Growth Rate) — in Portuguese, Compound Annual Growth Rate — is the annual growth rate that would represent, in a uniform and compound way, the variation of a value over a period. In other words: what would be the constant growth rate per year that would take from the initial value to the final value in the same number of years?
CAGR eliminates year-to-year volatility and provides a single rate that summarizes total growth for the period. It is especially useful for:
- Compare the performance of investments with different terms and risks
- Measure revenue growth, profit, customer base or any business metric
- Project future growth based on historical trends
CAGR Formula
CAGR = (Final Value / Initial Value)^(1/n) − 1
Where:
- Final Value = value at the end of the period
- Initial Value = value at the beginning of the period
- n = number of years in the period
Practical Calculation Examples
Example 1: CAGR of an Investment
You invested $ 10.000 em 2020 e em 2026 o valor é $ 18,500 (6 years):
CAGR = (18.500 / 10.000)^(1/6) − 1
CAGR = (1,85)^(0,1667) − 1
CAGR = 1,1079 − 1
CAGR = 0,1079 = 10,79% ao ano
This means that the investment grew as if it had yielded 10.79% per year compounded — regardless of fluctuations in the intervening years.
Example 2: Revenue CAGR of a Company
A company's revenue grew from $ 500.000 em 2022 para $ 2,100,000 in 2026 (4 years):
CAGR = (2.100.000 / 500.000)^(1/4) − 1
CAGR = (4,2)^(0,25) − 1
CAGR = 1,4324 − 1
CAGR = 0,4324 = 43,24% ao ano
A company with a revenue CAGR of 43% is considered high growth.
Example 3: Comparing Two Investments
| Investment | Home | End | Years | CAGR |
|---|---|---|---|---|
| Fund A | $ 20.000 | $ 32,000 | 5 years | 9.86% pa |
| Fund B | $ 20.000 | $ 29,000 | 4 years | 9.79% pa |
| Fund C | $ 20.000 | $ 40,000 | 8 years | 9.05% pa |
Despite different sizes and deadlines, CAGR allows you to compare the three directly. Fund A has the best CAGR.
Reference Table: CAGR by Asset Category
| Asset/Category | Approximate Historical CAGR |
|---|---|
| Savings (Brazil) | 5.5% to 7% per year |
| CDB (100% CDI, last 10 years) | 8% to 12% per year |
| Ibovespa (10 years, including dividends) | 12% to 18% per year |
| S&P 500 (long-term history, USD) | 10% to 11% per year |
| High Growth Startups | 50% to 100%+ per year |
| High Growth S&P 500 Companies | 20% to 40% per year |
| GDP Brazil (real growth) | 1.5% to 3% per year |
CAGR vs Simple Growth: What's the Difference?
Simple growth (or total percentage change) does not take into account the effect of time:
| Metrics | Formula | Result (Example) |
|---|---|---|
| Total variation (%) | (Vf − Vi) / Vi × 100 | (18,500 − 10,000) / 10,000 = 85% |
| CAGR (6 years) | (Vf/Vi)^(1/n) − 1 | 10.79% per year |
85% growth in 6 years sounds much more impressive than "10.79% per year" — but they are mathematically equivalent. CAGR is more honest and allows for fair comparisons.
How to Use CAGR for Projections
CAGR also serves to project future values by applying the historical rate:
Future Value = Current Value × (1 + CAGR)^n
Example: A company with a revenue CAGR of 25% and current revenue of $1,000,000:
| Year | Projected Revenue |
|---|---|
| +1 | $ 1.250.000 |
| +2 | $ 1,562,500 |
| +3 | $ 1.953.125 |
| +5 | $ 3,051,758 |
| +10 | $ 9,313,226 |
Limitations of CAGR
Ignores intermediate volatility: An investment that fell 50% in year 1 and rose 200% in year 2 has the same CAGR as one that grew steadily. The path matters to the risk.
Does not consider intermediate flows: The CAGR is calculated only between the starting and ending points. Contributions or withdrawals along the way are not captured — for these cases, use the IRR (Internal Rate of Return).
Can be manipulated by choice of period: Choosing a low-growth starting point or a high-growth end point artificially inflates the CAGR. Always look at multiple periods.
Does not predict the future: A historical CAGR of 30% does not guarantee that the company will grow 30% next year.
Frequently Asked Questions (FAQ)
1. What is a good CAGR for a startup?
For early-stage startups, a revenue CAGR of 100% or more (2x growth per year) is the VC market benchmark. SaaS startups with a CAGR of 50% per year are considered high growth. Below 20%, it is unlikely to attract attention from venture capital funds. For companies experiencing sustainable growth (not startups), 15% to 25% per year is already excellent.
2. What is the difference between CAGR and IRR?
CAGR uses only the starting and ending value to calculate the equivalent compound rate. The IRR (Internal Rate of Return) considers all intermediate cash flows (inputs, withdrawals, dividends). For investments with only an initial contribution and a final redemption, CAGR and IRR are identical. For investments with multiple contributions or distributions, use the IRR.
3. How to calculate the Stock Exchange CAGR with dividends?
To calculate Total Return CAGR, use the dividend-adjusted value as the final value. Some investment platforms provide the "adjusted price" which already includes the dividends paid. Alternatively, calculate the total accumulated value = initial investment × share appreciation + reinvested dividends.
4. Is negative CAGR possible?
Yes, when the final value is less than the initial value. Example: A fund that was $ 100.000 para $ 70,000 in 4 years has CAGR = (70,000/100,000)^(1/4) − 1 = 0.9149 − 1 = −8.51% per year. A negative CAGR means compounded value destruction over the period.
5. How is CAGR used by managers and analysts?
In business analysis, revenue CAGR, EBITDA and net profit are the central metrics for evaluating historical growth and projecting future growth. In valuation projections, the expected CAGR is one of the main assumptions of the DCF. In fund reports, the fund's CAGR is compared with the benchmark (Ibovespa, CDI, S&P 500) to evaluate the manager's performance.
Calculate CAGR Now
Use our CAGR Calculator to calculate the compound annual growth rate of any investment or business metric.
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- Compound Interest Calculator — calculate the amount with compound growth
- ROI Calculator — calculate the percentage return on investment
- Valuation Calculator — use CAGR in company value projections
- Investment Calculator — project wealth growth