Investment returns
CAGR: Formula, Example and Limitations
CAGR expresses the smooth annual rate that would connect one beginning value with one ending value over a period.
Reviewed 1 September 2026CAGR formula
CAGR equals ending value divided by beginning value, raised to one divided by the number of years, minus one. It is an annualized comparison measure, not a record of the return earned in each calendar year.
Worked example
If 100,000 grows to 150,000 in three years, CAGR is approximately 14.47%. The actual path could have included losses and gains that the single annualized number does not show.
When CAGR is useful
It can compare investments or business measures over equal or clearly stated periods when there are no intermediate cash flows. It is more informative than total percentage change when durations differ.
When to use another measure
CAGR is not appropriate for irregular contributions and withdrawals. XIRR or another money-weighted method is designed to account for dated cash flows, while time-weighted return answers a different performance question.
Primary and authoritative sources
Sources support factual context. Share Market Open remains responsible for its explanations and calculator assumptions.