Deep Dive: What Is CAGR (Compound Annual Growth Rate) — How to Calculate It and Why Every Investor Should Know It
NVIDIA's revenue surged from $39.3 billion in one quarter to $57.0 billion just three quarters later — a pace that, annualized, represents roughly 56% compound growth. Apple, meanwhile, grew its trailing twelve-month revenue from $395.8 billion to $435.7 billion over the same period, a steadier but still impressive 10.1%. How do you compare two such different growth trajectories on equal footing? The answer is CAGR — Compound Annual Growth Rate. CAGR is one of the most widely used metrics in finance, appearing in earnings calls, analyst reports, investment prospectuses, and stock screeners. It smooths out the noise of quarterly volatility to give you a single annualized growth rate that captures how an investment or business metric evolved over time. Whether you're evaluating a stock, comparing mutual fund performance, or sizing up an entire economy's expansion, CAGR is the tool that puts everything on the same playing field. Despite its ubiquity, CAGR is often misunderstood. It's not the same as an average return. It doesn't tell you anything about the path taken between the start and end dates. And it can be dangerously misleading if applied to the wrong time frame. This guide breaks down exactly what CAGR measures, how to calculate it, and — just as importantly — when not to rely on it.