CAGR Calculator Excel Formula
Instantly calculate the Compound Annual Growth Rate for your investments and learn the exact formulas to use in Excel.
Total Growth Multiple: …
Absolute Return: …
Copied!
Investment Growth Over Time
What is the Compound Annual Growth Rate (CAGR)?
The Compound Annual Growth Rate (CAGR) is a financial metric used to measure an investment’s average annual growth over a specific period, assuming the profits are reinvested at the end of each year. Unlike simple growth rates that can be volatile and misleading, CAGR provides a smoothed, geometric average that represents the constant rate at which the investment would have grown if it compounded annually. This makes it an invaluable tool for comparing the performance of different investments, tracking business metrics like revenue, and understanding the long-term profitability of an asset. Many professionals look for a reliable cagr calculator excel formula to perform this calculation accurately.
CAGR Formula and Explanation
The formula to calculate CAGR is straightforward and requires only three key inputs: the beginning value, the ending value, and the number of periods.
To use this formula, you simply divide the ending value by the beginning value, raise that result to the power of 1 divided by the number of periods, and then subtract one. The final result is the CAGR in decimal form, which you can multiply by 100 to get a percentage.
Formula Variables
| Variable | Meaning | Unit | Typical Range |
|---|---|---|---|
| Ending Value (EV) | The final value of the investment at the end of the period. | Currency ($), Unitless | Positive number |
| Beginning Value (BV) | The initial value of the investment at the start of the period. | Currency ($), Unitless | Positive number (non-zero) |
| N (Periods) | The total number of compounding periods (usually years). | Years, Quarters, Months | Integer > 0 |
Practical Examples of CAGR Calculation
Example 1: Stock Investment
Imagine you invested $10,000 into a stock. After 5 years, the investment is worth $25,000.
- Beginning Value: $10,000
- Ending Value: $25,000
- Periods (N): 5 years
Using the CAGR formula: CAGR = (($25,000 / $10,000) ^ (1/5)) - 1 = 20.11%. This means your investment grew at an average annual rate of 20.11% over the five years.
Example 2: Company Revenue Growth
A company’s revenue was $2 million in 2020 and grew to $5 million by 2024.
- Beginning Value: $2,000,000
- Ending Value: $5,000,000
- Periods (N): 4 years (2021, 2022, 2023, 2024)
The calculation is: CAGR = (($5M / $2M) ^ (1/4)) - 1 = 25.74%. The company’s revenue grew at a compounded annual rate of 25.74%.
How to Use This CAGR Calculator
Our calculator makes finding the CAGR effortless. Follow these simple steps:
- Enter Beginning Value: Input the initial amount of your investment or metric in the first field.
- Enter Ending Value: Input the final value in the second field.
- Enter Number of Periods: Provide the total number of years or other periods over which the growth occurred.
- Click Calculate: The calculator will instantly display the CAGR, along with the growth multiple and absolute return. The growth chart will also update to visualize the performance.
The CAGR Calculator Excel Formula
Calculating CAGR directly in Excel is powerful for financial modeling. There are two primary methods to find the cagr calculator excel formula.
1. Standard Formula Method
You can use the direct mathematical formula in any Excel cell. If your Ending Value is in cell B1, Beginning Value in A1, and Number of Periods in C1, the formula is:
=( (B1/A1) ^ (1/C1) ) - 1
You can also use the POWER function to make it slightly cleaner:
=POWER(B1/A1, 1/C1) - 1
2. Using the RRI Function
Excel has a built-in function called RRI (Equivalent Rate of Return) which is designed for this exact purpose. The syntax is =RRI(nper, pv, fv).
nper: Number of periods.pv: Present value (beginning value).fv: Future value (ending value).
For the same example, the formula would be:
=RRI(C1, A1, B1)
This is the cleanest and most reliable method for calculating CAGR in Excel.
Frequently Asked Questions (FAQ)
What is a good CAGR?
A “good” CAGR depends heavily on the industry, investment type, and risk. For stocks, a CAGR of 10-15% is often considered good, while venture capital might target much higher rates. It’s best to compare an investment’s CAGR to its industry benchmark.
What is the difference between CAGR and simple growth rate?
Simple growth rate measures the total percentage increase from start to finish, divided by the number of years. CAGR accounts for compounding, providing a geometric average that reflects how an investment grew year over year. Simple growth can be misleading for volatile investments.
Can CAGR be negative?
Yes. If the ending value is less than the beginning value, the CAGR will be negative, indicating an average annual loss over the period.
Why is the CAGR calculator excel formula so important?
Because Excel is the standard tool for finance professionals, knowing the correct formula (like RRI or the POWER function) is essential for building financial models, comparing investments, and performing valuations.
What are the limitations of CAGR?
CAGR’s main limitation is that it’s a theoretical, smoothed rate. It assumes steady growth and ignores volatility. An investment could have wild swings year-to-year, but the CAGR will only show a single average rate, masking the investment’s risk.
Does CAGR account for dividends?
The standard CAGR formula does not. To get a more complete picture, you should calculate Total Shareholder Return (TSR), which includes both capital appreciation and dividends.
How is the number of periods (N) determined?
The number of periods is the duration of the investment. For example, if you measure growth from the start of 2020 to the end of 2024, the number of periods is 5 years.
Is CAGR the same as IRR (Internal Rate of Return)?
No. CAGR is simpler and only uses the beginning and end values. IRR is more complex and accounts for all cash flows (both in and out) over the life of an investment. For a single lump-sum investment with no additional contributions, the IRR will be equal to the CAGR.
Related Tools and Internal Resources
Explore more of our financial calculators to gain deeper insights into your investments and financial planning.
- Investment Calculator: Project future growth of your investments.
- ROI Calculator: Calculate the return on investment for various projects.
- Retirement Calculator: Plan your savings to meet your retirement goals.
- Rule of 72 Calculator: Quickly estimate how long it takes for an investment to double.
- Present Value Calculator: Understand the time value of money.
- Inflation Calculator: See how inflation affects your purchasing power.