Growth Rate measures the percentage change in a specific financial metric over a defined period, typically on an annual basis. It quantifies how quickly a company's revenue, earnings, assets, or other key figures are increasing or decreasing. This metric is fundamental for understanding a company's momentum and expansion trajectory.

Formula

Growth Rate = ((Current Period Value - Previous Period Value) / Previous Period Value) * 100%. Here, 'Current Period Value' refers to the value of the metric (e.g., revenue, earnings) in the most recent period, and 'Previous Period Value' refers to the value of the same metric in the earlier period being compared. The result is then multiplied by 100 to express it as a percentage.

Why is it Important for Investors?

Investors pay close attention to growth rates because they are a strong indicator of a company's health, competitive position, and future potential. A consistently high growth rate in revenue or earnings suggests that a company is successfully expanding its market share, developing new products, or operating efficiently, which can lead to higher stock prices. Conversely, declining or stagnant growth rates can signal trouble, such as increased competition, market saturation, or operational inefficiencies. Analyzing growth rates helps investors identify companies with strong momentum, assess their valuation, and project future performance, making it a critical component of fundamental analysis.

What is a Good Growth Rate?

What constitutes a "good" growth rate varies significantly by industry, company maturity, and the broader economic climate. For established, large-cap companies in mature industries, a growth rate of 3-5% might be considered healthy and sustainable. For rapidly expanding tech or biotech startups, investors might expect double-digit or even triple-digit percentage growth, though such high rates are often unsustainable long-term. A negative growth rate indicates the company is shrinking, which is generally a red flag for investors unless it's a deliberate strategic divestment. It's crucial to compare a company's growth rate against its industry peers and its own historical performance to gain meaningful context.