Breakdown
How it works
Unlike a simple average of yearly percentages, CAGR accounts for compounding. Revenue growing 10,000 → 18,000 over 5 years has grown 80% in total but only 12.5% a year compounded, not 16%.
Formula
CAGR = (end ÷ start)^(1 ÷ years) − 1
Worked example
10,000 to 18,000 in 5 years: CAGR 12.47%; total growth 80%; simple average 16% (misleading).
Frequently asked questions
When is CAGR misleading?
When the path matters — it hides volatility and drawdowns — and when there were contributions or withdrawals in between (use IRR instead).
How do I calculate CAGR in Excel?
=RRI(years, start, end) or =(end/start)^(1/years)-1.
What CAGR do indices deliver?
Long-run nominal CAGR: S&P 500 ≈ 10%, MSCI World ≈ 8%, FTSE All-Share ≈ 7%, gold ≈ 7%, UK house prices ≈ 5–6%.