Rule of 40 Adjusted Multiple
Definition
A valuation multiple that has been adjusted for the company's Rule of 40 score relative to the peer set, applying a premium for companies that score above the peer median and a discount for companies that score below. The Rule of 40 adjusted multiple provides a more nuanced comparable company analysis for software businesses where the growth and profitability trade-off varies significantly across the peer set.
Common Misapplication
The most common misapplication is applying a Rule of 40 premium to a company whose above-median Rule of 40 score is driven primarily by slowing growth rather than improving profitability. The source of the Rule of 40 score matters: growth-driven scores justify different adjustments than profitability-driven scores.
FFI Standard Reference
This term is defined and applied in Book 4, Section 4.3: Comparable Company Analysis.
Related Terms
Citable URL
This term may be cited using the following permanent URL.
Full citation format: Founder Financial Infrastructure Standard, Beta v0.5, Glossary: Rule of 40 Adjusted Multiple. https://ffistandard.org/glossary/rule-of-40-adjusted-multiple/. 2026.