Revenue growth

Revenue growth is the first thing worth knowing about a business, because almost nothing else can improve for long without it. Margins can be cut into for a while and buybacks can lift earnings per share for a while, but a company whose sales are flat is a company running out of ways to grow profit.

A single year says little. What matters is the multi-year rate and whether it is steady or lumpy, which is why it is normally quoted as a compound annual rate across three or five years.

Revenue of $100m in 2021 and $200m in 2024.

1. 1That is three years of growth, not four.
2. 2200 / 100 = 2.
3. 32^(1/3) - 1 = 0.2599.

Every example in this glossary describes the same imaginary company, so the figures join up as you move between metrics.

• Compare it to the industry, not to zero. 6% is strong in packaged food and weak in software.
• Check whether growth came from selling more, charging more, or buying another company. Only the first two are the business improving.
• Steady beats spiky at the same average, because a rate you can extrapolate is worth more than one you cannot.

• Acquisitions inflate it without the underlying business getting better. Organic growth is the figure that matters and companies do not always separate it.
• A rate measured from a depressed year flatters everything after it.
• Growth bought with heavy discounting or generous credit terms can reverse quickly.

Revenue growth is one of four metrics in the Growth category of the scorecard, alongside EPS growth, free cash flow growth and the operating margin trend. It is measured as a compound rate across the reported years available, from annual figures taken only from 10-K filings.

The full methodology covers where the figures come from, how the statements are normalised, and what is deliberately left unadjusted.