NZ boost as Forbes ranks Xero as World’s Most Innovative Growth Company

New Zealand software accounting firm Xero has been ranked no.1 by Forbes in its list of the World’s 100 Most Innovative Growth Companies.

Revealed today to much excitement from the Xero offices around New Zealand, Xero topped the list ahead of fellow tech firms NetSuite and Monitise.

Founded by CEO Rod Drury, the company scored a top innovation premium score of 91.7%, largely in part to a five-year annual sales growth of 210.2%.

According to Forbes, the method relies on investors’ ability to identify firms they expect to be innovative now and in the future.

To be included on the Growth list, firms need seven years of public financial data and to be under $10 billion in market cap.

The bigger-company list includes a requirement that at least 1% of a company’s asset base be invested in R&D, but Forbes dropped that requirement for the mid-cap list since insufficient number of firms report R&D reliably.

Using something called the Innovation Premium to compile the list, rankings are calculated first by projecting a company’s income (cash flows, in this case) from existing businesses, plus anticipated growth from those businesses, and look at the net present value (NPV) of those cash flows.

Forbes then compares the NPV of cash flows from existing businesses with a current market capitalisation: Companies with a current market cap above the NPV of cash flows have an innovation premium built into their stock.

Xero’s response to the news? “What a honour,” said the company’s official blog.

For a full list of the World’s 100 Most Innovative Growth Companies click here