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GrowthUpdated Jun 1, 2026

Compound Annual Growth Rate (CAGR)

The constant annual growth rate that would take a starting value to an ending value over several years.

Formula

CAGR = (ending value ÷ starting value)^(1 ÷ years) − 1

Example

Five-year revenue CAGR

Setup
Revenue grew from $500M to $1B over 5 years.
Calculation
(1,000 ÷ 500)^(1/5) − 1 = 2^0.2 − 1 ≈ 14.87%
Takeaway
≈ 15% CAGR. Revenue doubled over the period; the equivalent constant annual rate is about 15%.

What it is

CAGR converts multi-year growth into a single, smoothed annual rate. It answers: "What constant per-year growth rate would have taken me from this starting value to this ending value?"

Why it's useful

Real-world growth is bumpy. CAGR smooths it out so two businesses (or two periods) can be compared on a single number.

The catch

CAGR does NOT mean the business grew at that rate every year. It's a smoothed average. A company that grew 50% one year and shrank 10% the next has the same CAGR over those two years as one that grew steadily — but they're very different stories.

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