CAGR vs Simple Average Growth: Why 80% Growth Over 5 Years Is Not 16% CAGR
Work one example to see why dividing total growth by the years is not the compound annual growth rate, and what the CAGR actually measures.
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CAGR Calculator
Find the yearly growth rate that connects a starting and an ending value over a period, see how it differs from a simple average, and compare two investments on the same yearly footing.
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Find the Growth Rate
Enter the values and the period. Results update as you type.
Enter a starting value, an ending value and a period to see the yearly growth rate that connects them.
How to Use the CAGR Calculator
- Choose Looking back if you know the ending value, or Looking ahead if you have a target value.
- Enter the starting value, the ending or target value, and the period in years and months.
- Read the CAGR, the total growth, the growth multiple and the simple yearly average. Results update as you change any value.
- To compare a second case, enter its ending value under Compare With Another Investment.
Reading the Result
The CAGR is the single yearly rate that, compounded each year, would turn the starting value into the ending value over the period.
The simple yearly average is the total growth divided by the number of years, nothing more. It ignores compounding, so for growth it is higher than the CAGR, and the gap widens with the period.
Looking ahead uses the same formula with a target. The result is the yearly rate that mathematically connects the two values. It does not say the target is likely or achievable.
Comparing two cases. The CAGR puts cases with different periods on a yearly footing. A larger total gain over a longer period can have a lower yearly rate.
Assumptions and What Is Not Included
- One starting value and one ending value, with no money added or withdrawn during the period.
- A constant yearly rate is the mathematical equivalent between the two values. The actual year-by-year path may have been very different.
- A past CAGR does not mean the same rate will happen again.
- Not included: regular investing (a SIP is not a lump sum) and XIRR, fees, tax, inflation, and dividends unless they are already in the ending value.
This is arithmetic on the numbers you enter, not advice or a forecast. See the disclaimer.
Example
Take ₹1,00,000 growing to ₹1,80,000 over 5 years. The total growth is 80.00%, the growth multiple is 1.80×, and the CAGR is 12.47%. Dividing the total growth by 5 gives 16.00% (the simple yearly average), which is higher because it ignores compounding. Now compare ₹1,00,000 growing to ₹2,40,000 over 9 years: the total growth is larger, 140.00%, but the CAGR is 10.22%, lower than 12.47%, because the growth took longer.
How It Is Calculated
CAGR = (ending value ÷ starting value)1 ÷ years − 1, where the years are the months divided by 12.
Total growth = (ending − starting) ÷ starting. Growth multiple = ending ÷ starting. Simple yearly average = total growth ÷ years.
CAGR Calculator FAQ
Why is the CAGR lower than the total growth divided by the years?
Dividing the total growth by the years spreads it evenly without compounding. The CAGR is the equal yearly rate that compounds to the same ending value, and that rate is lower than the simple division.
Can I use it for a SIP or other regular investments?
No. CAGR assumes one starting value and one ending value with nothing added or withdrawn. Regular investments need a different measure, and this calculator does not provide one.
What does Looking ahead tell me?
It gives the yearly rate that mathematically connects the starting value and the target over the period. It does not say the rate will occur or that the target is achievable.
What can I compare with Investment B?
A second starting value, ending value and period. A blank starting value or period uses the first case's. The table states the differences and does not rank the two.
Why must the period be at least a year?
A rate worked out over less than a year is stretched to a full year and can be misleading, so this calculator starts at one year.
