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What Is Revenue Growth?

Steven Levine, Founder of TickerPosts and OpenClassActions.com1 min readLast reviewed

Revenue growth shows how much a company's sales increased over a period. It is often called top-line growth because revenue appears near the top of the income statement.

How revenue growth is measured

A simple formula is:

  • Revenue growth = (current-period revenue − prior-period revenue) ÷ prior-period revenue

Investors often compare year-over-year growth, such as this quarter versus the same quarter last year. That helps reduce seasonal distortions for companies whose sales vary by time of year.

Where growth can come from

Revenue can grow for several reasons:

  • More units sold.
  • Higher prices.
  • New products.
  • Acquisitions.
  • Currency changes.
  • Temporary demand spikes.

Those sources are not equal. Organic growth from durable customer demand may be more meaningful than growth from a one-time acquisition or temporary shortage.

Why revenue growth is not enough

A company can grow revenue while losing more money. It can also grow sales by cutting prices, spending heavily on marketing, or accepting lower-quality customers.

Read revenue growth alongside gross margin, operating margin, cash flow, debt, and management's explanation. Strong top-line growth is useful, but profitable and cash-generating growth is usually the stronger signal.

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