CAGR

If you’re new to this: CAGR is the yearly growth rate that would take a starting amount to an ending amount if it grew by the same percentage each year.

Also called Compound annual growth rate

Why not divide the total growth by four?

Growing from 50 to 100 is 100% total growth. Dividing 100% by four gives 25%, but that treats each year’s increase as a share of the original 50. Compounding applies each year’s percentage to the new, larger amount.

At about 18.92% a year, 50 becomes about 59.46 after one year. The next year’s growth is calculated on 59.46, not 50. Keep repeating that process and the amount reaches 100 after four years. Growing by 25% each year would instead turn 50 into about 122.07.

CAGR in round numbers

Hypothetical: annual revenue grows from US$50m to US$100m over four years. CAGR = (ending amount ÷ starting amount)^(1 ÷ years) − 1. Here that is (100 ÷ 50)^(1 ÷ 4) − 1 ≈ 18.92% a year.

The table shows a smooth path at that rate, not the company’s actual results between the two endpoints. Values are calculated with the unrounded rate and then rounded to two decimal places.