This calculator finds the Compound Annual Growth Rate (CAGR) needed to grow (or shrink) a starting balance into an ending balance over a given period of time. In reality the actual asset's value will fluctuate year to year in varying degrees. What this calculator does it tell you the fixed interest rate needed to generate the return, just like if you had cash in a savings account that compounded annually and you never touched the balance. This is useful for apples to apples comparison across assets (eg comparing the return you got on a rental property to the return you got in the stock market).
The compound annual growth rate is useful for figuring the return on a house (hopefully positive), vehicle (typically negative), collectible (??), or other asset.
The equation used for finding the compound annual growth rate:
CAGR = (Ending Balance / Starting Balance)1 / YEARS - 1
Note that an average rate of return is misleading and pretty much useless for purposes of comparing investments. The compound rate is more realistic because it accounts for the growth of the balance over time.
For example, if an investment of $100 drops by 50% in the first year (drops to $50), and then gains 50% the next year (increases to $75), the 'average' return is zero (50 + -50) / 2 = 0, which is meaningless.
However, in that scenario compound rate of return is actually -13.4% as the calculator shows.