Rule of 40

Rule of 40 = TTM Revenue Growth (YoY %) + TTM EBITDA Margin (%)

Generally, higher values are better. Higher values indicate stronger performance, efficiency, or value.

• 1A score above 40% is generally considered healthy for growth companies.
• 2Companies can trade off growth for profitability and vice versa.
• 3Compare to industry benchmarks and historical performance.
• 4Higher scores indicate better balance between growth and profitability.

The Rule of 40 is a popular metric for evaluating SaaS and high-growth companies. It suggests that the sum of revenue growth rate and EBITDA margin should be at least 40%. Companies can achieve this through high growth, high profitability, or a balanced combination of both.

• Gross Margin
• Operating Margin
• Incremental Operating Margin
• EBITDA Margin
• Net Income Margin