What are growth and returns?

Growth and returns can be explained from the company's point of view, and from the investor's point of view. For a company, growth is when its business generates significantly positive cash flows or earnings. These earnings increase at a significantly faster rate than the overall industry's. When a company sees increasing growth, it is reflected in the company's share price too. And this is what investors call as growth stocks. They belong to companies with a high potential for growth. Returns, on the other hand, is the amount of money that is received from an investment. Returns are not expressed as absolute numbers. They are always represented as percentages. For example, let us take two stocks: Stock A and Stock Z Stock A gives you profits worth Rs. 100 on Rs. 50, while stock Z gives you profits worth Rs. 500 on Rs. 400. At first glance, it may appear that stock A gives you lower returns than stock Z. But as percentages on the investment, the returns from Stock A are 200%, while the returns from Stock Z are only 125%. Growth and returns are both important parameters to look at before investing. To learn more about how sustainably differentiated your investment is, head to the next chapter.