Growth Company

AAA

DEFINITION of 'Growth Company'

Any firm whose business generates significant positive cash flows or earnings, which increase at significantly faster rates than the overall economy. A growth company tends to have very profitable reinvestment opportunities for its own retained earnings. Thus, it typically pays little to no dividends to stockholders, opting instead to plow most or all of its profits back into its expanding business.

INVESTOPEDIA EXPLAINS 'Growth Company'

Growth companies are most often seen in the technology industries. The quintessential example of a growth company is Google, which has grown revenues, cash flows and earnings by leaps and bounds since its initial public offering. Growth companies such as Google are expected to increase profits markedly in the future, and thus the market bids up their share prices to high valuations. This contrasts with mature companies, such as diversified utility companies, which see very stable earnings with little to no growth.

RELATED TERMS
  1. Law Of Large Numbers

    In statistical terms, a rule that assumes that as the number ...
  2. Multiple

    A term that measures some aspect of a company's financial well-being, ...
  3. Price-Earnings Ratio - P/E Ratio

    A valuation ratio of a company's current share price compared ...
  4. Retained Earnings

    The percentage of net earnings not paid out as dividends, but ...
  5. Growth Stock

    Shares in a company whose earnings are expected to grow at an ...
  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. Investing

    Venturing Into Early-Stage Growth Stocks

    Picking these potential winners is all about sizing up risk. We show you how.
  3. Investing Basics

    Pin Down Stock Price With Real Options

    How can you assign a value to what a company may do with its business in the future? We explain how it works.
  4. Markets

    The Amateur Investor's Guide To Analyzing Corporate Efficiency

    Find out how the amateur investor can measure the success of management.
  5. Active Trading

    Sell Growth Stocks The IBD Way

    Savvy investing is all about learning some smart rules and sticking to them. We give you the rundown.
  6. Investing Basics

    What is the difference between an IPO and a seasoned issue?

    Learn how companies issue IPO securities when they first go public and seasoned issue shares if they sell more shares in the secondary market.
  7. Investing Basics

    How can growth investors benefit from investing in the oil & gas sector?

    Learn how the most important benefits incurred from growth investments are appreciation, compounding and a range of tax deductions.
  8. Investing Basics

    What types of companies offer the most dividends?

    Find out which types of companies tend to offer the most dividends, and learn why dividends must be considered carefully before being declared.
  9. Trading Strategies

    Is volatility a good thing or a bad thing from the investor's point of view, and why?

    Learn the basics of volatility in the stock market and how the increased risk provides greater opportunities for profit for both long- and short-term traders.
  10. Options & Futures

    What percentage of a diversified portfolio should be exposed to the forest products sector?

    Learn some principles which should guide portfolio management and diversification, and how forest products can be part of a well-balanced equity portfolio.

You May Also Like

Hot Definitions
  1. Multiplier Effect

    The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends ...
  2. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  3. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  4. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  5. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  6. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
Trading Center