medium · Private Equity value-creation
A software-focused PE firm uses the 'Rule of 40' to assess a target. The company is growing its ARR at 35% annually and has an EBITDA margin of 15%.
In the context of the Rule of 40, how is this company's performance characterized?
- It exceeds the Rule of 40 with a score of 50.
- It has a score of 20, representing the spread between growth and margin.
- It fails the Rule of 40 because the margin is below 20%.
- It is exactly at the benchmark with a score of 40.
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