Growth Firm

DEFINITION of 'Growth Firm'

A company that is growing at a rapid pace compared to its peers or to the broad economy. Although there is no hard-and-fast rule for defining growth, a growth firm generally has the capability to increase annual revenues by more the industry average over a sustained period. A firm would not be classified as a growth firm on the basis of a one-time surge in revenues; rather, growth has to be demonstrated over a number of years.

BREAKING DOWN 'Growth Firm'

Growth firms have the ability to scale up their business very rapidly. One consequence of this rapid growth is that the firm's balance sheet may come under significant pressure as capital demands escalate in line with business growth. While growth firms in the early stages may not be profitable, investors are generally willing to take a longer-term view in the expectation that rapid revenue growth will eventually translate into increasing profits and cash flow.


Growth firms can be found in any sector, but they tend to be clustered in areas such as technology and life sciences. As some of the biggest and most successful companies such as Apple and Google demonstrated in the past, size is also no barrier to being a growth firm.

RELATED TERMS
  1. Conservative Growth

    An investment strategy that aims to grow invested capital over ...
  2. Venture Capital

    Money provided by investors to startup firms and small businesses ...
  3. Growth Fund

    A diversified portfolio of stocks that has capital appreciation ...
  4. Growth Stock

    Shares in a company whose earnings are expected to grow at an ...
  5. Growth Industry

    A sector of the economy experiencing a higher-than-average growth ...
  6. Growth Rates

    The amount of increase that a specific variable has gained within ...
Related Articles
  1. Markets

    Is Growth Always A Good Thing?

    Getting big quickly looks good, but companies can get into trouble when they do it too fast. Find out how to spot this trouble.
  2. Markets

    Great Company Or Growing Industry?

    Look at the big picture when choosing a company - what you see may really be a stage in its industry's growth.
  3. Retirement

    Thomas Rowe Price: Always Right

    This great investor mastered a new type of investing with every new market he faced.
  4. Forex Education

    How To Use The P/E Ratio And PEG To Tell A Stock's Future

    While the price-to-earnings ratio is commonly used for assessing stock prices, the price/earnings-to-growth ratio offers forecasting advantages that investors need to know.
  5. Mutual Funds & ETFs

    The 4 Best T. Rowe Price Funds for Growth Investors in 2016 (TROW)

    Discover the four best mutual funds administered and managed by T. Rowe Price that specialize in investing in stocks of growth companies.
  6. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  7. Investing Basics

    4 Things That Make a Stock a Safe Bet

    No investment is a sure bet, but you can reduce your chances of taking a loss by choosing fair-priced stocks with growth potential and low volatility.
  8. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  9. Mutual Funds & ETFs

    The 4 Best American Funds for Growth Investors in 2016

    Discover four excellent growth funds from American Funds, one of the country's premier mutual fund families with a history of consistent returns.
  10. Mutual Funds & ETFs

    The 4 Best Vanguard Funds for Growth Investors in 2016

    Discover four mutual funds managed by the Vanguard Group that would be attractive for investors interested in investing in growth stocks in 2016.
RELATED FAQS
  1. When does a growth stock turn into a value opportunity?

    A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
  2. Do hedge funds invest in private companies?

    Hedge funds normally do not invest in private companies because of liquidity concerns. Capital funding for private companies ... Read Full Answer >>
  3. Who do hedge funds lend money to?

    Many traditional lenders and banks are failing to provide loans. In their absence, hedge funds have begun to fill the gap. ... Read Full Answer >>
  4. How do you find the break-even point using a payback period?

    It does not make sense to find the breakeven point using a company's payback period. A company's payback period is concerned ... Read Full Answer >>
  5. How attractive is the food and beverage sector for a growth investor?

    The food and beverage sector is attractive for a growth investor. The sector's high degree of volatility means it tends to ... Read Full Answer >>
  6. How attractive is the retail sector for a growth investor?

    Retail is an attractive sector for a growth investor due to its propensity for turning in bigger-than-average gains when ... Read Full Answer >>
Hot Definitions
  1. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  2. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  3. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  4. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  5. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center