Revenue Growth

The foundations of growth

Growth is the only force that can lift a company from obscurity to iconic status. When a company grows faster than the market it wins market share, attracts talent, can reinvest in R&D, and builds a spiral that reinforces itself. Without growth the company dies slowly — it loses market share, cannot pay market-rate salaries, and is forced into structural rationalizations that erode the future. Revenue growth is the purest measure of this: how much more did the company sell this year compared to last year? It is the first indicator in AKM1 because everything else — margins, cash flow, valuation — must be interpreted in the light of the growth rate. A company with 5% margins and 30% growth is often more valuable than a company with 20% margins and 0% growth, because the former has a future to capitalize on.

💡 INSIGHT

Growth is not just a number — it is a direction. A company that grows 10% per year doubles its revenue in 7,2 years (the rule of 72). A company that grows 25% per year does the same in 3 years.

Why exactly revenue growth first?

Revenue growth sits at the top of the income statement — it is line 1, net revenue. Everything else (EBITDA, profit, cash flow) is a derivative of it. You can have fantastic margins on zero sales, but that means you have a gym, not a company. You can have a brilliant product without sales, but that is called an invention, not a business. AKM1 has chosen revenue growth as its first variable (weight 8%) because it establishes the context: what is the company trying to do, and are they succeeding? Once you have established the growth rate you can interpret the following 18 variables correctly. A P/E of 40 is unreasonable for a company with 0% growth but reasonable for a company with 35% growth. An ROE of 25% means different things depending on whether revenue is growing 30% or shrinking 5%.

📖 DEFINITION

Revenue growth = (Net revenue year T − Net revenue year T-1) / Net revenue year T-1 × 100. Measured in percent, annually. Also called 'sales growth' or 'revenue growth'.

The three dimensions of growth

An analyst breaks growth down into three dimensions. First: volume vs price — is revenue growing because the company sells more units (volume growth) or because it raises prices (price growth)? Volume growth is healthier; price growth can be inflation or market power but is harder to sustain. Second: organic vs acquired — does the growth come from existing operations or from acquisitions? Organic growth is more valuable because it is repeatable and capital-efficient. Acquired growth requires capital, integration, and carries synergy risks. Third: existing vs new customers — are the same customers buying more (NRR > 100%) or are new customers being added? SaaS companies with NRR 130% have a built-in growth engine that requires no new customer acquisition. These three dimensions determine whether 20% growth is 'genuine' or 'false'.

⚡ KEY INSIGHTS Growth is the engine — everything else in AKM1 is interpreted in the light of the growth rate Volume growth > price growth; organic > acquired; NRR > 100% is optimal The rule of 72: 10% growth = doubling in 7,2 years; 25% = 3 years Revenue growth sits on line 1 of the income statement — start there 2

What is organic growth?

Organic growth is revenue growth that comes from the company's existing operations — the same products, the same markets, the same customers, but more of it. It is the most valuable form of growth because it is 1) repeatable, 2) capital-efficient, 3) proof that the business model works, and 4) builds moat through economies of scale and brand. When Atlas Copco grows 8% organically year after year it shows that their compressor technology is in demand and that customers come back. When H&M grows 12% by opening 200 new stores that is organic — the same concept, more units. A rule of thumb: companies that can grow 10%+ organically over a 10-year period without deploying large amounts of capital are exceptional and deserve a premium valuation.

✓ TIP

Look for 'organic growth' or 'organic revenue growth' in the CEO's statement. Many companies report this explicitly. If they do not — ask why.

Acquired growth and its illusion

Acquired growth is when revenue increases because the company has bought another company. It looks like growth in the income statement, but it is really a capital transaction: the company has exchanged cash for revenue. The problem is threefold. First: integration risk — 60-70% of M&A transactions destroy shareholder value according to McKinsey. Second: synergies are often exaggerated in the presentation but underestimated in cost. Third: acquired growth often masks weak organic growth — if a company consistently needs to buy up competitors in order to grow, that is a warning sign. Sinch is one example: massive acquisitions drove revenue growth above 50% during 2018-2021, but organic growth was often 5-10%. When the acquisition drought came in 2022 the multiples collapsed and the stock fell 90%.

⚠️ WARNING

A company that reports 'growth 30%' where 25% is acquisitions and 5% is organic is substantially different from a company with 30% organic growth. Read the notes to the accounts — companies must often disclose organic growth separately.

How to adjust for currency and acquisitions

A sophisticated analyst always adjusts revenue growth for currency and comparability. Currency adjustment: if a Swedish company has 50% of its sales in USD and the USD has weakened 10% against SEK, reported growth will be 5pp lower than the underlying. Companies often report 'currency-adjusted growth' — read it! Comparability: if the company sold a division in May, the year-on-year comparison is misleading. Look for 'comparable growth' or 'like-for-like' in the report. Finally: the calendar effect — the 53rd week of the retail year, Easter timing, leap years. Small adjustments, but professional analysts care about them. Summary: reported growth ≠ underlying growth. The difference is often 2-5 percentage points, which can move a company from score 3 to score 4.