Growth metrics · Financial analysis
CAGR Formula: What It Is, How to Calculate It
Compound Annual Growth Rate is the single most common yardstick analysts use to compare revenue growth, earnings growth, and investment returns across companies and time periods. This guide walks through the formula step by step, applies it to Apple's five-year revenue run, benchmarks it by sector, and shows the situations where CAGR flatters or misleads.
CAGR is the constant annual rate that grows a starting value into an ending value over n years. Unlike point-to-point percentage change, CAGR normalizes uneven growth across any time horizon into a single comparable figure.
The CAGR Formula, Step by Step
The formula has three inputs and no moving parts. Getting the inputs right matters more than the arithmetic.
| Input | Definition | Watch out for |
|---|---|---|
| End Value (EV) | The closing balance — revenue, earnings, or portfolio value at the end of the period | Lumpy one-time items that inflate or deflate the final year |
| Beginning Value (BV) | The opening balance at the start of the period | Anomalous base years (COVID troughs, one-time write-downs) distort the whole CAGR |
| n (number of years) | The number of full years between start and end — always in years, not months or quarters | Using months (e.g., n=60) instead of years (n=5) produces a meaningless result |
The algebraic derivation starts from compound interest: EV = BV × (1 + r)^n. Solving for r gives r = (EV/BV)^(1/n) − 1. The exponent 1/n is the n-th root — it undoes n years of compounding to find the equivalent constant annual rate. n must be in years. If your data spans 18 months, n = 1.5, not 18.
Worked Example: Apple Revenue 2019 to 2024
Apple (AAPL) is a clean five-year example because fiscal year boundaries are consistent and the company reports revenue in a single segment-comparable line. The revenue growth base is large enough that the CAGR understates the absolute dollar expansion.
Step 1: Identify inputs
- Beginning Value (FY2019 revenue)
- $260.2B
- End Value (FY2024 revenue)
- $391.0B
- n (FY2019 to FY2024)
- 5 years
Step 2: Apply the formula
- EV / BV
- 391.0 / 260.2 = 1.5027
- Raise to 1/n power
- (1.5027)^(0.2) = 1.085
- CAGR (1.085 − 1)
- 8.5%
Apple grew revenue at an 8.5% CAGR from FY2019 to FY2024. This blends organic growth in Services and Wearables with the ongoing maturation of iPhone — and it represents organic plus acquisition-driven growth combined. The CAGR does not reveal that absolute revenue expanded by $130.8B, nor does it show that FY2023 was essentially flat. Use CAGR alongside the year-by-year table to see both the trend and the volatility. The earnings growth story over the same period looks different — Apple's net income CAGR ran ahead of revenue CAGR as margins expanded.
Revenue CAGR Benchmarks by Sector
Five-year revenue CAGR varies sharply by sector. These ranges reflect median large-cap and mid-cap performance; individual companies in high-growth phases can exceed the top of the range. Treat these as a rough screen, not a hard ceiling.
| Sector | Typical 5-Year Revenue CAGR |
|---|---|
| Technology | 10–20% |
| Healthcare | 7–12% |
| Consumer Discretionary | 5–10% |
| Consumer Staples | 3–6% |
| Financials | 5–8% |
| Industrials | 4–7% |
| Utilities | 2–4% |
Mid-cap companies in high-growth phases — a software-as-a-service company scaling distribution, a healthcare innovator expanding into new indications — can run well above the top of these ranges for several years before reverting toward sector medians as the law of large numbers takes hold.
CAGR vs. Absolute Growth
CAGR normalizes uneven time periods for apples-to-apples comparison. A company that grew revenue 50% in year one and then shrank 10% over the next four years will show a smooth CAGR that hides the volatility. Absolute growth — the raw dollar or percentage change from start to end — tells a truer story when you need to show the magnitude of change.
Consider two companies over ten years. Company A grows from $1M to $10M — a 900% absolute gain. Company B grows from $100M to $200M — a 100% absolute gain. Both have the same 26% CAGR over ten years, yet they are very different businesses: one is a small-cap rocket still proving its model, the other a mature platform doubling in size. CAGR by itself will not tell you which is the better investment.
For EPS CAGR comparisons, the gap between revenue CAGR and earnings CAGR is especially informative: a company whose EPS CAGR substantially exceeds its revenue CAGR is expanding margins; one where the opposite is true is sacrificing profitability to grow the top line.
When CAGR Misleads
Three situations make CAGR an unreliable summary statistic:
- Lumpy endpoints. CAGR is entirely determined by the starting and ending values — it ignores everything in between. A COVID-year base year inflates or deflates the CAGR significantly because it sets an artificially low or high starting point. Check a mid-period snapshot (e.g., a 3-year CAGR starting one year later) to see whether the result is robust or endpoint-sensitive.
- Negative or zero base year. When the beginning value is negative (a net loss) or zero, the formula either produces a meaningless result or breaks down entirely. Trying to calculate EPS CAGR for a company that was losing money in year one requires a different approach — most analysts instead report the absolute change from loss to profit or use a revenue-based proxy.
- Acquisition-driven jumps. A single large acquisition can create a one-time revenue step-up that CAGR treats as sustained organic growth. A company that acquired a competitor doubling its size in year three will show a high 5-year CAGR even if organic growth was modest. Always check whether the revenue growth was organic, acquired, or currency-driven before concluding a high CAGR reflects business momentum.
Calculate CAGR for Any Stock
The CAGR calculator at Basis Report lets you enter any ticker and time range to get the revenue, earnings, and free cash flow CAGR in seconds. You can compare CAGR across multiple periods to see whether growth is accelerating or decelerating, and benchmark the result against sector peers automatically.