Investors and business analysts rely on compound annual growth rate (CAGR) to assess investment performance over multiple years. Unlike simple returns, CAGR accounts for the effect of compounding—earnings generated on earnings—providing a single annualized figure that smooths volatility across the entire holding period. Whether you're evaluating a stock portfolio, evaluating business growth, or comparing investment opportunities with different time horizons, CAGR offers a standardized way to measure real performance.
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Compound interest forms the foundation of CAGR calculations. Instead of earning returns only on your original principal, compound interest generates earnings on both the initial amount and all accumulated gains from previous periods. This creates exponential growth over time—a phenomenon often called the