CAGR: one rate between two endpoints, not the whole journey
Comparing growth over different time spans can be awkward. CAGR provides a constant annual equivalent that connects a starting value with an ending value. It does not tell you how the values moved in between.
An equivalent rate, not a simple average
Find the rate which, compounded each year, reaches the known endpoint. The formula is (end ÷ start) raised to (1 ÷ years), minus 1, multiplied by 100. This is the equivalent-rate formula documented for Microsoft’s RRI function; choosing years makes the result annual.
Total growth answers a different question: how much larger is the ending value relative to the starting value? Dividing that percentage by the years ignores compounding and generally does not produce the same CAGR.
References: Microsoft Learn: equivalent growth rate formula, RRI
Count elapsed intervals, not year labels
The beginning of 2023 to the beginning of 2025 is two years, even though a list contains three labels: 2023, 2024 and 2025. Use elapsed time and ensure the two measurements describe the same thing at comparable points.
Annual order counts measured with the same definition can make sense. Comparing one month’s revenue with an entire year’s revenue, or quantities in different units, does not become valid by annualizing the result. Check what the endpoints mean first.
What two numbers cannot establish
A steadily rising series and one that surges then falls can share the same endpoints and therefore the same CAGR. The number alone does not establish stability, risk or continuing growth.
This model requires positive starting and ending values and positive elapsed time. It does not separate intermediate deposits or withdrawals from growth, and does not calculate a cash-flow return. If those events matter to the question, an endpoint rate alone is not the required answer.
From 400 orders to 625 orders over two years
In a teaching example, comparable annual order counts rise from 400 to 625 between observations two years apart. The factor is 625 ÷ 400 = 1.5625. Its square root is 1.25, so CAGR is 25%. Total growth is 56.25%; the annual rate is not 28.125%.
A path of 400, then 500, then 625 follows steady 25% yearly growth. A path of 400, then 800, then 625 has the same CAGR despite falling in the final year. This original comparison shows why intermediate observations matter and why the result alone does not predict next year.