Definition:

The 3-year Revenue Growth Rate measures the compound annual growth rate (CAGR) of a company's revenue over a three-year period. It provides insight into how quickly a company's revenue is increasing over time.

Formula:

3-Year Revenue Growth Rate = [(Revenue at End of Period / Revenue at Start of Period)^(1/3)] - 1

How to use the metric:

This metric is used by investors and analysts to assess a company's growth trajectory and compare it with peers or industry benchmarks. A higher growth rate indicates a company is expanding its revenue base effectively, which can be a positive sign for potential investors.

Limitations:

The 3-year Revenue Growth Rate does not account for profitability or cash flow, which means a company could be growing its revenue but not necessarily improving its financial health. It also doesn't consider external factors like market conditions or economic cycles that might influence revenue growth.

Applies to:

This metric is particularly useful in industries where growth is a key performance indicator, such as technology, consumer goods, and healthcare, where companies often focus on expanding their market share and revenue base.

Doesn't apply to:

Industries with stable or declining growth prospects, such as utilities or mature manufacturing sectors, may not find this metric as relevant. In these industries, other metrics like dividend yield or return on equity might be more informative.

Summary:

The 3-year Revenue Growth Rate is a valuable metric for evaluating a company's revenue expansion over a medium-term period. While it provides insights into growth potential, it should be used in conjunction with other financial metrics to get a comprehensive view of a company's performance.