Close Navigation
.

Rule of 40

Trading Term

The Rule of 40 is a screening measure frequently applied to software and subscription businesses. It adds a company’s percentage revenue growth rate to a selected profitability margin and compares the total with 40%.

Calculation methods differ because companies may use operating margin, EBITDA margin, adjusted EBITDA margin, or free cash flow margin. Investors should apply consistent definitions when comparing businesses.

IBKR Campus Newsletters

This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.