How to Calculate Annual Growth Rate in Excel (CAGR)
Calculating the Annual Growth Rate, commonly referred to as the Compound Annual Growth Rate (CAGR), is a fundamental skill for financial analysts, business owners, and investors. Unlike a simple average, CAGR provides a smoothed geometric mean that tells you what an investment yielded on an annually compounded basis.
Whether you are tracking revenue growth, portfolio performance, or user acquisition over several years, understanding the formula and how to implement it in Excel is crucial for accurate data analysis.
CAGR Calculator
Total Growth:0%
Compound Annual Growth Rate (CAGR):
0.00%
Excel Formula for this calculation:
=(Ending_Value/Beginning_Value)^(1/n)-1
function calculateGrowthRate() {
// Get input values using var
var startVal = parseFloat(document.getElementById('startValue').value);
var endVal = parseFloat(document.getElementById('endValue').value);
var n = parseFloat(document.getElementById('periods').value);
var errorDiv = document.getElementById('errorMessage');
var resultBox = document.getElementById('resultBox');
// Reset error
errorDiv.style.display = 'none';
resultBox.style.display = 'none';
// Validation logic
if (isNaN(startVal) || isNaN(endVal) || isNaN(n)) {
errorDiv.innerText = "Please enter valid numbers for all fields.";
errorDiv.style.display = 'block';
return;
}
if (startVal === 0) {
errorDiv.innerText = "Beginning Value cannot be zero (division by zero error).";
errorDiv.style.display = 'block';
return;
}
if (n <= 0) {
errorDiv.innerText = "Number of periods must be greater than zero.";
errorDiv.style.display = 'block';
return;
}
// CAGR Formula: (End / Start) ^ (1 / n) – 1
var ratio = endVal / startVal;
// Handle negative bases with fractional exponents if necessary (complex numbers),
// but for standard growth, assume positive inputs or handle basic negative direction.
// If endVal is negative and start is positive, simple CAGR formula fails in Real numbers.
if (ratio < 0) {
errorDiv.innerText = "CAGR cannot be calculated for negative ending values using standard formulas.";
errorDiv.style.display = 'block';
return;
}
var cagrDecimal = Math.pow(ratio, (1 / n)) – 1;
var cagrPercent = cagrDecimal * 100;
// Total Growth Formula: (End – Start) / Start
var totalGrowthDecimal = (endVal – startVal) / startVal;
var totalGrowthPercent = totalGrowthDecimal * 100;
// Display Results
document.getElementById('cagrResult').innerText = cagrPercent.toFixed(2) + "%";
document.getElementById('totalGrowthDisplay').innerText = totalGrowthPercent.toFixed(2) + "%";
// Update Excel Syntax display for user reference
var syntax = "=(" + endVal + "/" + startVal + ")^(1/" + n + ")-1";
document.getElementById('excelSyntax').innerText = syntax;
resultBox.style.display = 'block';
}
Understanding the CAGR Formula
The formula used in the calculator above and in Excel manual calculations is:
Beginning Value: The initial value of the investment or metric.
Ending Value: The value at the end of the period.
n: The number of years or periods over which the growth occurred.
How to Calculate Annual Growth Rate in Excel
There are two primary methods to calculate the annual growth rate in Microsoft Excel:
Method 1: The Manual Formula
This method replicates the mathematical formula directly into an Excel cell. Assuming:
Cell A1: Beginning Value (e.g., $10,000)
Cell B1: Ending Value (e.g., $15,000)
Cell C1: Number of Years (e.g., 5)
You would enter the following formula in a new cell:
=(B1/A1)^(1/C1)-1
Note: Remember to format the result cell as a "Percentage" to see the rate clearly.
Method 2: The RRI Function
Excel provides a built-in function specifically for this calculation called RRI. This function returns an equivalent interest rate for the growth of an investment.
The syntax is: =RRI(nper, pv, fv)
nper: Number of periods (Years)
pv: Present Value (Beginning Value)
fv: Future Value (Ending Value)
Using the previous example, the formula would be:
=RRI(C1, A1, B1)
Why Use Annual Growth Rate (CAGR)?
CAGR is preferred over simple average growth rates because it accounts for the compounding effect of growth over time. It answers the question: "If this investment had grown at a steady rate every single year to reach the final value, what would that rate be?"
This makes it an excellent tool for comparing the historical performance of different investments, business units, or economic indicators that may have had volatile fluctuations year-over-year.