Compound Annual Growth Rate (CAGR)

The annualised rate of return at which the net present value of all cash flows from an investment equals zero. IRR is the standard performance metric for private equity and venture capital funds, allowing comparison across investments with different holding periods and cash flow profiles.

The annualised value of recurring subscription revenue. ARR is the primary top-line metric for SaaS and subscription businesses, providing a normalised view of predictable revenue that strips out one-time fees and variable charges.

The rate used to convert future expected cash flows into their present value, reflecting the time value of money and the risk associated with those cash flows. Selecting the appropriate discount rate is one of the most critical and sensitive decisions in intangible asset valuation, as small changes can materially alter the estimated fair value.

The rate used to convert a single-period earnings or cash flow figure into an indication of value, calculated as the discount rate minus the expected long-term sustainable growth rate. The capitalisation rate is the reciprocal of the capitalisation multiple and is used in the capitalisation of earnings method for businesses with stable, predictable income streams.

The rate at which a firm increases its output relative to its inputs over time. Productivity growth is a key indicator of operational efficiency and long-term competitiveness, closely linked to investment in intangible assets such as technology, training, and process improvement.

A dividend discount model that values a perpetual stream of cash flows growing at a constant rate, calculated as the next period's cash flow divided by the difference between the discount rate and the growth rate. The Gordon growth model is widely used to estimate terminal value in discounted cash flow analyses and requires that the assumed growth rate remains below the discount rate.

The percentage increase in a company's revenue over a specific period, typically measured year-over-year or quarter-over-quarter. Revenue growth rate is a fundamental measure of business expansion, market traction, and the effectiveness of go-to-market strategy.

The rate at which a company spends cash in excess of its income, typically expressed as a monthly figure. Burn rate is a critical metric for startups and growth-stage companies, directly determining how long the business can operate before requiring additional capital (runway).

How is the Rule of 40 calculated and when does it apply?

The Rule of 40 states that a healthy SaaS company's revenue growth rate plus profit margin should exceed 40% — it applies primarily to SaaS companies at scale and is used by investors to assess growth-profitability balance.