Example summary
| Scenario | Beginning | Ending | Time | CAGR |
|---|---|---|---|---|
| Investment growth | $10,000 | $16,000 | 4 years | 12.47% |
| Revenue growth | $2.0M | $3.5M | 5 years | 11.84% |
| Salary growth | $50,000 | $80,000 | 5 years | 9.86% |
| Decline | 100 | 75 | 3 years | -9.14% |
Example 1: $10,000 grows to $16,000 in four years
This is a useful baseline because the total gain is easy to see: $6,000, or 60%. CAGR answers a different question by converting that four-year change into a constant compounded annual rate.
CAGR = (16,000 ÷ 10,000)^(1 ÷ 4) − 1
CAGR = 1.6^0.25 − 1
CAGR ≈ 12.4683%
The result is not 15%. Dividing the 60% total gain by four ignores the fact that compound growth builds on the prior year's value. A constant 12.4683% compound rate is what connects $10,000 to $16,000 over exactly four years.
Example 2: revenue rises from $2.0 million to $3.5 million in five years
CAGR is not limited to investments. A business can use the same endpoint formula to summarize the annualized pace of revenue growth.
CAGR = (3,500,000 ÷ 2,000,000)^(1 ÷ 5) − 1
CAGR ≈ 11.8427%
Revenue increased 75% in total, but the annualized compound rate is about 11.84%. This is useful for comparing businesses or periods of different lengths, provided the underlying revenue definitions are consistent.
Example 3: salary rises from $50,000 to $80,000 in five years
Salary growth can also be summarized with CAGR when the goal is to compare the first and last annual salary levels. The formula is the same:
CAGR = (80,000 ÷ 50,000)^(1 ÷ 5) − 1
CAGR ≈ 9.8561%
This does not imply the person received a 9.86% raise every year. Promotions, job changes, flat years, or one-time jumps can all produce the same endpoint CAGR. The number only describes the constant annual rate that would connect the two salary levels.
Example 4: a value falls from 100 to 75 in three years
CAGR can describe decline as well as growth. Because the ending value is lower than the beginning value, the result is negative:
CAGR = (75 ÷ 100)^(1 ÷ 3) − 1
CAGR ≈ -9.1440%
A -9.14% CAGR means a constant annual decline of about 9.14% would reduce 100 to 75 over three years. Actual year-by-year changes may have been very different.
Example 5: exact dates instead of a whole number of years
Suppose $10,000 becomes $18,000 between January 1, 2021 and September 13, 2026. Those dates are 2,081 days apart. Under this site's ACT/365 Fixed convention, the elapsed period is 2,081 ÷ 365, or about 5.70137 years.
CAGR = (18,000 ÷ 10,000)^(1 ÷ 5.70137) − 1
CAGR ≈ 10.8597%
An exact-date result depends on the chosen day-count convention. Excel's XIRR also annualizes dated cash flows using a 365-day year, while other financial systems can use different conventions. The key is to document the method rather than silently rounding the period.
What the examples have in common
Each example has one clearly defined beginning value, one ending value, and one elapsed period. That is the ideal use case for CAGR. The unit itself does not matter: dollars, revenue, users, subscribers, traffic, market size, or another positive measure can all use the same mathematics.
What does matter is consistency. Beginning and ending values should measure the same concept, the period must be counted correctly, and the reader should understand that CAGR smooths the path between the endpoints. If intermediate deposits or withdrawals matter, switch to a cash-flow-aware method rather than forcing the data into a two-point CAGR formula.