Simple CAGR
Fixed Return
Calculate FV from CAGR
Use the CAGR calculator tool to work out the compound annual growth rate of your investment.
Last reviewed: 21 of February 2025
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What is CAGR?
Compound annual growth rate (CAGR) is a business and investment term that is used to refer to the average annual growth rate of an investment over a certain period of time (usually longer than one year). CAGR measures the mean annual growth of an investment based on the assumption that this investment's value grows at a steady rate, compounded annually.
To put it more simply, CAGR essentially tells you: If you invested x dollars for the period over x to the future value, what would be the steady, annual return you'd need from a compounding investment. However, do think of this only as a hypothesis and not as a return that you would get in the real world. This is meant to be a useful way to analyze the performance of each investment and to plan for it to be one of them over the next years or a certain number of years.
Calculating it is enormously useful: a growth profile is not as hard as it looks as long as you know that the investment's value and period of time and a CAGR calculator such as ours can do all the mathematical heavy lifting for you for the final calculations. Follow the steps below.
How to calculate CAGR
To calculate CAGR, divide the future value of the investment (FV) by the present value (PV), raise the result to the power of one divided by the number of periods (n), and then subtract one from the result.
In order to calculate the compound annual growth rate (CAGR) of an investment, you need the following:
- 1. Present value (PV)
- 2. Future value (FV)
- 3. The time in years (n)
Step by step
1
Take the future investment value (FV) and divide it by its present value (PV).
2
Raise the result/figure to the power of 1 divided by the number of years the investment is for (n).
3
Subtract 1 from the result.
Formula for CAGR
CAGR example calculation
Your real estate company, for instance, had an initial investment of $100,000 five years ago, your start. If the value of the investment today is $180,000, then the rest of the steps in our example calculation is as follows:
- Present Value (PV) = 100000
- Future Value (FV) = 180000
- Time in years (n) = 5
Applying these into our formula
This gives us:
(1.8)0.2 − 1 = 0.1246
So that means the rate is 0.1246, or 12.46 as a percentage. The CAGR of real estate's company investment is therefore 12.46%.
Chart of fixed-rate growth
If the fixed-rate growth of 12.46% per year, then each of your individual years would look like this...
| Year | Value | Growth |
|---|
| 0 | $100,000.00 | - |
| 1 | $112,460.00 | $12,460.00 |
| 2 | $126,472.52 | $14,012.52 |
| 3 | $142,226.00 | $15,753.48 |
| 4 | $159,958.53 | $17,732.53 |
| 5 | $179,937.35 | $19,978.82 |
How useful is CAGR?
Since the data used by CAGR reduces any series of growth cycles and downturns and rates to a return rate of a fixed rate of investment, the compound annual growth rate allows us a very fast and effective comparison of risk between the two investments' projected rates on growth.
That's because the annual rate also disregards the difficulty of compounding and it's just normative in an overview and in the growth of an investment. The CAGR essentially represents a rate calculated within a constant growth rate.
When you compare fund to fund, you can see at the growth rate of an investment and how the year is split into returns every year to a year's computation. As a result CAGR is very useful to show at a glance where a decision was on the proposal of our investment. This can also be used for housing to give yield of product returns.
Comparing the rate of different portfolios, growth rate of one to your same above a certain period is a very good tool. In addition to assets, CAGR is used to compare prices as well — it's frequently used to calculate the performance of sales, of profit, or revenue over a long or a higher growth rate. Companies love a strong, effective comparison of growth rates.
It's compound as in a growth rate (as it describes how to track the performance of values). Investment or rates or if it's a double or a necessary obligation you've decided. The size of any amount that is CAGR comprehension, so the investment's return from its present to its future investment — in addition to it's all, it is ahead by a CAGR compounded number consistent with these ideas of ratios of holders to be transferred from the performance of the value.
Limitations of CAGR
One of the primary limitations of compound annual growth rate is that it ignores volatility. In reality, CAGR makes you feel that there is a smoothed annual figure but the underlying rise or down doesn't exist at all. Investors also can't use or assume that if a very massive assumption, but is very good to take the factor. In fact, this is an indication as an area of risk as has its own nature. In context, one may have considered a variety of what further returns.
It's compound as in a growth rate so it also has no alternative as a calculation: a variable that is not in place where you are confident when the growth rate of it is included in the chart or forecast. It's also guaranteed for this and like the size of the funds, due to a range of or financial external factors.
CAGR of an index
CAGR and this tool both measure of return on an investment over a period of time. IRR is not at all a more fine-tuned way of looking at the investment performance and allows for multiple cash flows over that same time period.
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