Growth Firm

A company that is growing at a rapid pace compared to its peers or to the broad economy. Although there is no hard-and-fast rule for defining growth, a growth firm generally has the capability to increase annual revenues by more the industry average over a sustained period. A firm would not be classified as a growth firm on the basis of a one-time surge in revenues; rather, growth has to be demonstrated over a number of years.

Growth firms have the ability to scale up their business very rapidly. One consequence of this rapid growth is that the firm’s balance sheet may come under significant pressure as capital demands escalate in line with business growth. While growth firms in the early stages may not be profitable, investors are generally willing to take a longer-term view in the expectation that rapid revenue growth will eventually translate into increasing profits and cash flow.

Growth firms can be found in any sector, but they tend to be clustered in areas such as technology and life sciences. As some of the biggest and most successful companies such as Apple and Google demonstrated in the past, size is also no barrier to being a growth firm.

Investment dictionary. . 2012.

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