CAGR (Compound Annual Growth Rate)

CAGR stands for Compound Annual Growth Rate. It is a financial metric that shows you how much an investment, company revenue, or any measurable value has grown on average each year over a specific period of time.

CAGR (Compound Annual Growth Rate) tells you how much something has grown on average each year over a period of time — like an investment, business revenue, or mutual fund value. Unlike simple average growth rates, CAGR assumes that profits are reinvested each year, providing a more accurate picture of true annualised growth.

Why is CAGR Important?

• Helps compare the growth of different investments or companies over time.
• Gives a standardised rate of return, making it easier to evaluate long-term performance.
• Ideal for tracking the growth of revenue, profit, mutual funds, stocks, or portfolio returns.

How to Calculate CAGR

Use this formula:

CAGR = [(Ending Value / Beginning Value) ^ (1 / Number of Years)] - 1

Then multiply the result by 100 to convert it into a percentage.

Example:

Let’s say you invested ₹1,00,000 in a stock and it became ₹1,60,000 in 3 years.

CAGR = [(1,60,000 / 1,00,000) ^ (1/3)] - 1

= (1.6) ^ 0.333 - 1 = 0.1699 or 17%

So, your investment grew at an average rate of 17% per year over 3 years.