Growth Rates

Loading the player...

What does 'Growth Rates' mean

Growth rates refer to the amount of increase that a specific variable has gained within a specific period and context. For investors, this typically represents the compounded annualized rate of growth of a company's revenues, earnings, dividends and even macro concepts - such as the economy as a whole.

Expected forward-looking or trailing growth rates are two common kinds of growth rates used for analysis.

BREAKING DOWN 'Growth Rates'

Different types of industries have different benchmarks for rates of growth. For instance, companies that are on the cutting edge of technology would be more likely to have higher annual rates of growth compared to a mature industry, like retail sales.

The use of historical growth rates is one of the simplest methods of estimating future growth. However, historically high growth rates don't always mean a high rate of growth looking into the future, because industrial and economic conditions change constantly.

For example, the auto industry has higher rates of revenue growth during good economic times. However, in times of recession, consumers would be more inclined to be frugal and not spend disposable income on a new car.

RELATED TERMS
  1. Growth Industry

    A sector of the economy experiencing a higher-than-average growth ...
  2. Economic Growth Rate

    A measure of economic growth from one period to another in percentage ...
  3. Internal Growth Rate

    The highest level of growth achievable for a business without ...
  4. Effective Annual Interest Rate

    Effective Annual Interest Rate is an investment's annual rate ...
  5. Growth Company

    Any firm whose business generates significant positive cash flows ...
  6. Real Economic Growth Rate

    A measure of economic growth from one period to another expressed ...
Related Articles
  1. Economics

    Explaining Growth Rates

    Growth rate refers to the amount a specific variable or measure has grown over a specified time, whether related to one company or an entire economy.
  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. 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.
  4. Investing Basics

    Growth Investing

    Growth investing is a strategy where an investor seeks out companies demonstrating signs of high earnings that are well above the average rate compared to other firms in their industry and within ...
  5. Options & Futures

    Stock-Picking Strategies: Growth Investing

    In the late 1990s, when technology companies were flourishing, growth investing techniques yielded unprecedented returns for investors. But before any investor jumps onto the growth investing ...
  6. Economics

    Economic Growth

    Economic growth happens when the market value of the goods and services in an economy increase in one time period as compared to a prior time period.
  7. Investing Basics

    Introduction To Growth Investing

    There are principles and techniques that are applicable for many different types of investors and growth strategies.
  8. Economics

    How Interest Rate Cuts Affect Consumers

    Stock traders usually rejoice when the Federal Reserve cuts interest rates. But it’s not always best for everyone.
  9. Economics

    Is Infinite Economic Growth on a Finite Planet Possible?

    While the finite nature of Earth's resources limits the direction of economic growth, it does not mean that infinite economic growth is impossible.
  10. Investing Basics

    Income, Value and Growth Stocks

    Investors who buy stocks generally seek one of three criteria: undervalued holdings, growth potential or steady income. The characteristics of stocks in each of these categories differs accordingly.
RELATED FAQS
  1. What level of annual growth is common for companies in the Internet sector?

    Learn what level of annual growth is common for companies in the Internet sector in terms of revenue growth and earnings ... Read Answer >>
  2. How is the rule of 70 related to the growth rate of a variable?

    Find out more about the rule of 70, what it is used for and how it is related to the growth rate of a variable. Read Answer >>
  3. What growth rate does the financial services sector demonstrate on average?

    Find out what the average annual growth rate in the financial services sector has been, and learn about factors that might ... Read Answer >>
  4. What are common growth rates that should be analyzed when considering the future ...

    Learn about some of the most commonly used measures for evaluating a company's future growth prospects and analyzing it as ... Read Answer >>
  5. What can cause the terminal growth rate to be negative?

    Learn about the assumptions built into terminal valuations and in what circumstances the applied terminal growth rate might ... Read Answer >>
  6. Is the financial services sector appropriate for a growth investor?

    Take a look across the landscape of today's financial services sector, an industry that has historically served growth investors ... Read Answer >>
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center