the guide
CAGR: the compound annual growth rate explained
By Shivam Bhandari · Reviewed 31 October 2026 · How we write
CAGR, or compound annual growth rate, is the steady yearly growth rate that would take a value from its starting point to its ending point over a number of years.
It is useful because real growth is uneven. A business might grow 40% one year and 5% the next; CAGR smooths this into one comparable number for revenue, profit, investments or market size.
the formula
CAGR = (Ending value ÷ Starting value)^(1 ÷ Years) − 1
- · Multiply by 100 to express it as a percentage.
- · Absolute growth = (End − Start) ÷ Start, which ignores time.
Worked example: revenue growth
- Revenue grew from ₹10 lakh to ₹25 lakh over 5 years.
- CAGR = (25 ÷ 10)^(1/5) − 1 ≈ 20.11% a year.
- Absolute growth is 150%, but CAGR shows what that means each year.
Tips
- 1Use CAGR to compare growth across businesses or investments over different periods.
- 2Remember CAGR hides volatility — check year-by-year numbers too.
- 3Be careful with very short periods, which can exaggerate CAGR.
- 4Use consistent start and end points (for example, financial years).
Frequently asked questions
What is CAGR?
The compound annual growth rate — the constant yearly rate that would grow a starting value to an ending value over a given number of years.
How is CAGR different from average growth?
Average growth adds yearly growth rates and divides; CAGR accounts for compounding and gives the true steady rate.
Can CAGR be negative?
Yes — if the ending value is lower than the starting value, CAGR is negative.
What is a good CAGR for a business?
It depends on industry, size and stage. Compare with competitors and your own targets rather than a single benchmark.