Multi-Year Growth Rate (CAGR) Calculator
Calculate the Compound Annual Growth Rate over a specific period.
Annual Growth Rate (CAGR)
How to Calculate Growth Rate Over Multiple Years in Excel
Calculating growth over a single year is simple: (New – Old) / Old. However, when measuring performance over several years, a simple average can be misleading because it ignores the compounding effect. To accurately measure multi-year growth, we use the Compound Annual Growth Rate (CAGR).
In Excel, there are three primary ways to calculate this multi-year growth rate:
1. Using the RRI Function (Easiest)
The RRI function is designed specifically to return an equivalent interest rate for the growth of an investment.
Example: If you have $1,000 in cell A1, $2,500 in cell B1, and the period is 5 years, use =RRI(5, A1, B1).
2. Using the Manual Mathematical Formula
If you prefer the raw math, the formula for CAGR is: ((Ending Value / Beginning Value)^(1 / Number of Years)) - 1.
3. Using the GEOMEAN Function
If you have a series of specific annual growth percentages (e.g., 5%, 10%, -2%), you can calculate the multi-year growth using GEOMEAN by adding 1 to each rate, then subtracting 1 at the end.
The Importance of CAGR
CAGR provides a "smoothed" annual rate of return. It tells you what the annual growth would have been if the value grew at a steady rate each year. This is vital for comparing different assets (like stocks vs. real estate) over the same time horizon.
Practical Example
Imagine your business revenue was $50,000 in 2018 and grew to $120,000 by 2023 (5 years later).
- Beginning Value: 50,000
- Ending Value: 120,000
- Periods: 5
- Calculation: ((120,000 / 50,000)^(1/5)) – 1 = 19.14%
This means your business grew at a compound rate of 19.14% every year for five years.