Growth Rates

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DEFINITION of 'Growth Rates'

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.

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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.

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RELATED FAQS
  1. How is a company's share price determined?

    A company's share price is theoretically determined by the summation of the company's expected future dividends as calculated ... Read Full Answer >>
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    Sustainable growth is the maximum growth rate a startup can maintain internally without the need to seek external financing, ... Read Full Answer >>
  3. How can I calculate the value of a stock as per the Gordon Grown Model, using Excel?

    The Gordon growth model, or the dividend discount model, is a model used to calculate the intrinsic value of a stock based ... Read Full Answer >>
  4. How do I use the PEG (price to earnings growth) ratio to determine whether a stock ...

    The PEG ratio, or price/earnings to growth ratio, is a good tool for determining stock valuation when you need to make a ... Read Full Answer >>
  5. How does the risk of investing in the industrial sector compare to the broader market?

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