CAGR or compound annual growth rate is a way to measure how an investment, portfolio or business has grown over a specific period of time. If an investment has a high CAGR, then the value of that investment is compounding quickly year over year and will be higher than another investment with a lower CAGR. The formula for calculating CAGR is as follows:

CAGR = (Ending balance/beginning balance)^1/N – 1

where ending balance is the balance at the end of the timeframe being analyzed, beginning balance is the balance at the beginning of the timeframe being analyzed, and N is the number of years within that timeframe. As such, the CAGR is primarily a retrospective tool to see the performance of an investment or business over a period of time in the past. However, certain facts can be derived from different CAGR levels such as a CAGR of 26% will double the beginning investment in 3 years.