How to Calculate Compounded Annual Growth Rate in Excel

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CAGR Calculator (Compound Annual Growth Rate)

Result

The Compound Annual Growth Rate is: 0.00%

Excel Formula for these values:

function calculateCAGR() { var start = parseFloat(document.getElementById('beginningValue').value); var end = parseFloat(document.getElementById('endingValue').value); var years = parseFloat(document.getElementById('numYears').value); var resultDiv = document.getElementById('resultArea'); var output = document.getElementById('cagrOutput'); var excel = document.getElementById('excelFormula'); if (isNaN(start) || isNaN(end) || isNaN(years) || start <= 0 || years <= 0) { alert("Please enter valid positive numbers. Beginning value and years must be greater than zero."); return; } // CAGR Formula: [(Ending Value / Beginning Value) ^ (1 / Number of Years)] – 1 var growthRate = Math.pow((end / start), (1 / years)) – 1; var percentage = (growthRate * 100).toFixed(2); output.innerText = percentage + "%"; excel.innerText = "=(( " + end + " / " + start + " ) ^ ( 1 / " + years + " )) – 1"; resultDiv.style.display = "block"; }

How to Calculate Compounded Annual Growth Rate in Excel

Compound Annual Growth Rate (CAGR) is one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time. Unlike standard average returns, CAGR accounts for the compounding effect, providing a "smoothed" annual rate of return.

The CAGR Formula

To calculate CAGR manually, use this mathematical formula:

CAGR = [(Ending Value / Beginning Value) ^ (1 / n)] – 1
Where "n" is the number of years or periods.

3 Ways to Calculate CAGR in Excel

1. Using the Manual Formula

If your beginning value is in cell A1, ending value in B1, and years in C1, enter this into D1:

=((B1/A1)^(1/C1))-1

2. Using the RRI Function

Excel provides a built-in function specifically for CAGR called RRI. The syntax is:

=RRI(number_of_periods, beginning_value, ending_value)

Example: =RRI(5, 1000, 2500) will return the annual growth rate required for 1,000 to grow to 2,500 over 5 years.

3. Using the RATE Function

While often used for loans, the RATE function works for CAGR if you leave the "pmt" (payment) field as 0:

=RATE(nper, 0, -beginning_value, ending_value)

Note: The beginning value must be entered as a negative number to represent an initial investment.

Realistic Example

Imagine you invested in a technology stock in 2018. Your initial investment was 10,000. By 2023 (5 years later), the portfolio is worth 18,500.

  • Beginning Value: 10,000
  • Ending Value: 18,500
  • Years: 5
  • Calculation: ((18500 / 10000)^(1/5)) – 1 = 0.1309 or 13.09%

This means your investment grew at a compounded rate of 13.09% every year for five years.

Why Use CAGR Instead of Simple Average?

Simple averages can be misleading. If an investment grows 100% in Year 1 and loses 50% in Year 2, the simple average return is 25% ( (100-50)/2 ). However, you actually have the same amount of money you started with (0% growth). CAGR correctly identifies this as a 0% growth rate because it looks at the beginning and end points relative to the time passed.

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