Plain definition
Compound annual growth rate, or CAGR, is the constant annual rate that would turn a starting value into an ending value over a stated number of years. It summarizes the endpoints and does not show the volatility, losses, or funding needed between them.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
Revenue grows from to in three years. CAGR is 12.94%: (1.44 ÷ 1.00)^(1/3) − 1. The company also shows the annual results, because a fall in year two followed by a rebound can produce the same CAGR as steady growth.
Why it matters
CAGR can make volatile results look smooth. Showing the path protects a funding or capacity decision from relying on an endpoint rate that the business never achieved consistently.
Practical consequence
State start value, end value, exact period count, and whether the measure is revenue, profit, or another metric. Do not annualise a short or abnormal period as though it were a stable trend.