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AppleNVIDIABerkshireMetrics guide
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Metrics guide›Growth and cash

Rule of 40

Growth % plus FCF margin %. A software rule of thumb: a healthy company scores 40 or more, by growing fast, by making lots of cash, or both.

Worked example · a round-number company

Growth %25+FCF margin %20=Rule of 4045

How to read it

↑Higher is better. Fast growth can make up for thin margins, and the other way round.

Example Co. 45
Under 2020 to 40Over 40

40 or more is the usual bar. It fits software best; for other industries treat it loosely.

Keep in mind

  • Mixing growth and margin hides which one is doing the work; look at both.

Related

Revenue growthFCF margin