The compound annual growth rate of revenue over five years. A longer view that captures a full business cycle. Above 8% is solid. Consistent 5Y growth above 15% in a large company signals a strong competitive position.
Formula
Description
Compound annual growth rate of revenue over five years. A longer time horizon that captures a full business cycle and filters out temporary boosts or headwinds. This is useful for assessing the company's secular growth trend.
Interpretation
Above 8% over five years is solid for most industries. Compare to GDP growth and industry growth rates. Consistent 5Y CAGR above 15% in a large company is rare and signals a strong competitive position.
Related Quality Indicators
The percentage of revenue left after paying all operating expenses but before interest and taxes. This shows how efficiently the core business runs. Above 15% is generally strong. Consistently expanding margins signal improving business quality.
The percentage of every revenue dollar that becomes bottom-line profit after all expenses. Above 10% is strong for most industries. Persistently high net margins often indicate a company has a competitive moat protecting its business.
Profitability before the effects of debt, taxes, and depreciation. Useful for comparing companies across different tax jurisdictions and capital structures. Above 20% is generally strong. Often used in merger and acquisition analysis.
The percentage of revenue that converts to free cash flow. This is arguably the most honest profitability metric because free cash flow is difficult to manipulate. Above 10% is strong. Capital-light businesses like software companies tend to have the highest FCF margins.
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