From 12/31/2020 to 12/31/2025 revenue grows from $20m to $25m. If you're attempting to calculate the CAGR, which formula correctly outputs the CAGR?

• A. (25/20) ^ (1/5) - 1
• B. (Ending Value / Beginning Value) ^ (1 / # of periods) - 1
• C. 1 - (20/25) ^ (1/5)
• D. (25/20) ^ (1/4) - 1

Answer: (B)

CAGR is the constant annual growth rate that turns the starting value into the ending value over a set number of years. The standard way to compute it is (Ending Value / Beginning Value)^(1 / number of periods) - 1. Here, ending value is 25, beginning value is 20, and the period span is 5 years (2020 to 2025). So the calculation is (25/20)^(1/5) - 1 = 1.25^(0.2) - 1 ≈ 0.0456, or about 4.56%. This matches the correct form because it uses the ratio raised to the reciprocal of the exact number of years. The other expressions either use the wrong period count or apply a nonstandard form (for example, using the inverted ratio or 1 minus a ratio), which don’t yield the CAGR as defined.