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Growth rates

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Definition of Growth rates

Growth Rates Image 1

Growth rates

Compound annual growth rate for the number of full fiscal years shown. If there is a negative
or zero value for the first or last year, the growth is NM (not meaningful).



Related Terms:

Managerial decisions

Decisions concerning the operation of the firm, such as the choice of firm size, firm
growth rates, and employee compensation.


constant-growth dividend discount model

Version of the dividend discount model in which dividends grow at a constant rate.


Constant-growth model

Also called the Gordon-Shapiro model, an application of the dividend discount
model which assumes (1) a fixed growth rate for future dividends and (2) a single discount rate.


Critical Growth Periods

Times in a company's history when growth is essential and without which survival of the business might be in jeopardy.


Cross rates

The exchange rate between two currencies expressed as the ratio of two foreign exchange rates
that are both expressed in terms of a third currency.



dividend growth method

a method of computing the cost
of common stock equity that indicates the rate of return
that common shareholders expect to earn in the form of
dividends on a company’s common stock


Dividend growth model

A model wherein dividends are assumed to be at a constant rate in perpetuity.


Growth Rates Image 2

expectations theory of exchange rates

Theory that expected spot exchange rate equals the forward rate.


growth funds

Mutual funds that seek long-term capital growth. This type of fund invests primarily in equity securities.


Growth manager

A money manager who seeks to buy stocks that are typically selling at relatively high P/E
ratios due to high earnings growth, with the expectation of continued high or higher earnings growth.


Growth opportunity

Opportunity to invest in profitable projects.


Growth phase

A phase of development in which a company experiences rapid earnings growth as it produces
new products and expands market share.


growth rate

an estimate of the increase expected in dividends
(or in market value) per share of stock


Growth stock

Common stock of a company that has an opportunity to invest money and earn more than the
opportunity cost of capital.


Internal growth rate

Maximum rate a firm can expand without outside source of funding. growth generated
by cash flows retained by company.


internal growth rate

Maximum rate of growth without external financing.


Growth Rates Image 3

Multiple rates of return

More than one rate of return from the same project that make the net present value
of the project equal to zero. This situation arises when the IRR method is used for a project in which negative
cash flows follow positive cash flows. For each sign change in the cash flows, there is a rate of return.


Net present value of growth opportunities

A model valuing a firm in which net present value of new
investment opportunities is explicitly examined.



Preferred Rates

As non-smoking rates caused a major reduction in the cost of life insurance in the early 1980's, the emergence of preferred non-smoker rates in 1998 has caused another noteworthy reduction in rates. A growing number of insurance companies are offering better rates which go beyond simply looking at gender or smoking habits. Other health related factors such as physical build, lifestyle, avocation and personal and family health history indicating longer life expectancy can add up to significant cost savings to new life insurance applicants. Make certain to ask about these new preferred rates.


Present value of growth opportunities (NPV)

Net present value of investments the firm is expected to make
in the future.


present value of growth opportunities (PVGO)

Net present value of a firm’s future investments.


Real exchange rates

Exchange rates that have been adjusted for the inflation differential between two countries.


Simple compound growth method

A method of calculating the growth rate by relating the terminal value to
the initial value and assuming a constant percentage annual rate of growth between these two values.


Spot exchange rates

Exchange rate on currency for immediate delivery. Related: forward exchange rate.


Sustainable growth rate

Maximum rate of growth a firm can sustain without increasing financial leverage.


sustainable growth rate

Steady rate at which a firm can grow without changing leverage; plowback ratio × return on equity.


Term Structure of Interest Rates

Relationship among interest rates on bonds with different terms to maturity.



 

 

 

 

 

 

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