CAGR vs XIRR at a glance
| Question | CAGR | XIRR |
|---|---|---|
| Inputs | Beginning value, ending value, elapsed time | A series of cash flows and their dates |
| Intermediate deposits/withdrawals | Not modeled | Modeled explicitly |
| Formula | Closed-form endpoint formula | Rate that makes dated cash-flow NPV equal zero |
| Typical use | Revenue, market size, one lump-sum investment | SIPs, recurring contributions, staggered withdrawals |
CAGR starts with two endpoints
CAGR takes one beginning value, one ending value, and elapsed time. It finds the constant annual compound rate that would connect those endpoints:
This makes CAGR a clean choice for questions such as “How fast did revenue grow from 2021 to 2026?” or “What annualized rate connects a $10,000 starting balance with a $16,000 ending balance four years later?”
XIRR uses dated cash flows
Microsoft defines XIRR as the internal rate of return for a schedule of cash flows that is not necessarily periodic. Instead of only using the first and last values, it uses every cash flow and its date. Conceptually, XIRR solves for the annual rate r that makes the discounted value of all dated cash flows sum to zero.
Microsoft's XIRR documentation states that succeeding payments are discounted based on a 365-day year. Excel also requires the cash-flow series to contain at least one positive and one negative value.
Which one should you use?
| Scenario | Better fit | Why |
|---|---|---|
| One lump sum grows from $10,000 to $16,000 | CAGR | Only the endpoints and elapsed period are needed |
| Monthly investment contributions | XIRR | Each contribution changes the invested capital on a different date |
| Company revenue from 2021 to 2026 | CAGR | The question is endpoint business growth, not investor cash flows |
| Portfolio with top-ups and withdrawals | XIRR | Timing and size of money moving in and out matter |
| Two exact dates, one initial outflow and one final inflow | Either, if conventions align | A two-cash-flow XIRR is an exact-date annualized return; endpoint CAGR can match when it uses the same day-count basis |
Example: why contributions change the answer
Imagine an account starts with $10,000 and ends at $20,000. If no money entered or left the account, CAGR can annualize the endpoint growth. But if the investor added another $5,000 halfway through, the ending balance was produced by more than the original $10,000. A two-point CAGR would ignore that extra capital and could overstate the investor's return.
XIRR handles the situation by treating the original investment, the later contribution, and the final value as dated cash flows. The later contribution has less time to affect the result than the original contribution, which is exactly why cash-flow timing matters.
Exact dates: where CAGR and XIRR can overlap
The exact-date mode on this site converts actual elapsed days to years using ACT/365 Fixed. If a calculation contains only one starting value and one ending value, that is mathematically close to treating the start as a negative cash flow and the end as a positive cash flow under a 365-day XIRR convention.
Once additional cash flows appear, the models separate. CAGR still sees only two endpoints; XIRR sees the timing of every payment. That is why this site does not attempt to label a simple CAGR as a portfolio money-weighted return when intermediate contributions or withdrawals exist.
XIRR in Excel
In Excel, place cash flows in one range and their corresponding dates in another. The function syntax is XIRR(values, dates, [guess]). An initial investment is normally entered as a negative cash flow, while proceeds or ending value are positive.
If the cash flows are periodic rather than irregular, Excel also provides IRR. XIRR is the relevant comparison here because its dated cash-flow model is what distinguishes it from endpoint CAGR.
Neither metric measures risk
CAGR and XIRR compress performance into an annualized percentage. Neither tells you how volatile the path was, how large the drawdowns were, or whether taxes, fees, inflation, or leverage materially changed the economic result. The right metric depends on the question, and the result still needs context.