Glossary
Rule of 40
A test for software companies: revenue growth rate plus profit margin should be at least 40%.
A company growing revenue at 30% with a 10% margin scores 40. The margin used varies, most often EBITDA or free-cash-flow margin, so it is worth checking which one a company quotes.
It is a rough way to compare businesses that trade growth against profitability, and is used more for later-stage and listed software companies than for early-stage ones.
In Hebrides
Research insights extracts the growth and margin figures behind it, each with its source document.
Research insights