The fundamental growth rate is a way to estimate the growth of revenue by using a company’s financial statements. The calculator uses the following formulas:

• Reinvestment Rate = (Research & Development + Marketing - Depreciation & Amortization + Capex + Acquisitions + Change in Net Working Capital) / Revenue

• Revenue to Invested Capital = Revenue / (Total Equity + Total Debt)

• Fundamental Growth Rate = Reinvestment Rate * Revenue to Invested Capital

This tool can be used to compare the fundamental growth rate to analyst estimates to see if they match. If they don’t match, you can start looking into reasons why analysts have different opinions.

This tool can also be used as an input for the “Initial high growth rate” in the H-model valuation calculator.

Note: Acquisitions should only be included if a company regularly acquires other firms, which would indicate that it is a core growth strategy. In addition, it’s best practice to use the average total debt and average total equity for this calculation. To calculate the averages, take the sum of total debt and total equity at the beginning and end of a given period and divide it by 2.