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What you will learn
- Calculate revenue growth using the earlier period as the base.
- Weight segment changes by their starting revenues.
- Distinguish reported growth from a comparison with changed scope.
Start with two comparable periods
Our company sells SEK 800 million in year one and SEK 1,000 million in year two. Both are complete twelve-month periods, in the same currency and with the same reported segments. The main example has no acquisitions, disposals or currency effects. The figures are teaching data rather than numbers from a real company.
The increase is 1,000 − 800 = SEK 200 million. Growth is 200 / 800 × 100 = 25%. Earlier revenue is the denominator because it describes the level before the change. Dividing by 1,000 would give 20%, answering a different question about the increase relative to the new level.
If the table does not fit, scroll it sideways.
| Segment | Year one | Year two |
|---|---|---|
| A | SEK 600 million | SEK 660 million |
| B | SEK 200 million | SEK 340 million |
| Total | SEK 800 million | SEK 1,000 million |
Segments have different starting sizes
A grows by 60 / 600 × 100 = 10%. B grows by 140 / 200 × 100 = 70%. Their simple average is 40%, but that is not the company’s growth. A represents three quarters of initial sales and B one quarter.
Use starting weights of 600 / 800 = 0.75 and 200 / 800 = 0.25. Weighted growth is 0.75 × 10 + 0.25 × 70 = 25%. Also check by adding monetary increases: 60 + 140 = SEK 200 million. Ending weights describe a later allocation and should not replace starting weights in this calculation.
Changed scope needs its own supporting data
A reported sales figure may be affected by businesses joining the company or by currency changes. Read the company’s explanation of comparability and how any adjusted growth measure is calculated. A heading saying organic growth is not enough to identify the adjustments that were removed.
Do not compare six months with a full year without explaining the difference. If the earlier period’s revenue is zero, ordinary division cannot apply the percentage formula. State the monetary change and what is missing for a meaningful comparison. Our main example uses a positive base and precisely specified periods.
Growth alone does not explain profit or share price
You can state that company revenue grew 25% in the model. The table cannot establish that net profit, cash flow or share price grew by the same amount. Costs, payments and valuation require other information. State what the measure covers before describing a result as strong or weak.
Investiq’s company guide helps you check the company, currency and period in your material. This lesson is your own calculation from supporting data; it does not promise a growth filter or automatic segment data in the app. Continue with revenue and profit or operating margin to follow what remained from sales.
Try it yourself
A separate company previously had SEK 500 million revenue and now reports 625 million. A newly acquired business contributes 75 million. Assume the same currency, full years and no other scope changes. Calculate reported growth and the change for the previous business.
Show the solution and explanation
Reported growth is 25%. The previous business has revenue of SEK 550 million and has grown 10% under the stated assumptions.
(625 − 500) / 500 × 100 = 25. Remove the new business’s 75: 625 − 75 = 550; (550 − 500) / 500 × 100 = 10. For a real adjusted measure, check the company’s definition and other effects.
Check your understanding
Why is the average of 10% and 70% wrong for the whole company?
Segments had different starting revenues. Their changes need weights of 75% and 25%.
Can the same formula calculate percentage growth from zero revenue?
No. Division by zero is undefined. Describe the monetary change and comparison data instead.
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More lessons on this topic
Analyse company finances
Sources and examples
- SEC: income statements, balance sheets, cash flows and inventory turnover
- CFA Institute: comparisons, liquidity and limitations of ratios
The sources support the factual explanations. Calculations and exercises were created for this lesson. Amounts and price changes are invented unless stated otherwise.
This material is educational and does not recommend securities to buy. A simulated result does not guarantee a future result.
