Revenue Growth

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Benzinga  10 hrs ago  Comment 
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Benzinga  Apr 26  Comment 
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Revenue Growth is the percent increase (or decrease) in a company's revenue between two or more equivalent fiscal periods

Revenue Growth is used to measure how fast a company's business is expanding. The figure shows the annual rate of increase/decrease in a company's revenue or sales growth. The figures give analysts, investors and participants an idea of how much a company's sales are increasing over time.

While revenue growth tends to fluctuate from fiscal year to fiscal year and fiscal quarter to fiscal quarter, investors look for trends in revenue growth as a means of gauging the company's growth over proscribed periods of time. All other things being equal, a company that is able to continually grow its revenue should see equivalent increases in net income.

Rate of Revenue Growth

Taking the derivative of the revenue growth gives you the rate of revenue growth, which tells you how much the rate of revenue growth is changing. Investors look at this figure to gauge a potential forthcoming change in earnings growth. If a company that has been able to consistently grow its revenues at some pace begins to see smaller revenue growth over one or more fiscal periods, it may be an indicator that the growth itself will continue to decrease over time, or that it has plateaued.

Example

Company ABC generated $100 billion in revenue during its third quarter of 2005 and $120 billion in the fourth quarter that year, the company saw quarterly revenue growth of 20% sequentially.

If Company ABC generated $150 billion in the fourth quarter of 2004, the company would have seen its revenue increase 50% on a year-over-year basis

Revenue Growth Calculation on Wikinvest

Wikinvest calculates revenue growth as the growth of trailing twelve months of revenue. The treatment is different from Yahoo! Finance which calculates quarterly year-over-year growth. The following example will illustrate the difference:

' 2006 2007 2008
Q1$100m$104m$144m
Q2$120m$142m$120m
Q3$130m$140m
Q4$140m$170m

Q2 2008 is the most recent quarter. In this case, Yahoo! Finance would calculate revenue growth as -15.5% [(120-142)/142].

Wikinvest, on the other hand would calculate the growth as 11.2%. This is because wikinvest calculates the growth based on the revenue generated in the last twelve months. In this case, Q3 07, Q4 07, Q1 08 and Q2 08. Specially, it is calculated as:

Revenue growth = ((120+144+170+140)-(142+104+140+130))/(142+104+140+130) = 11.2%

Taking the growth based on trailing twelve months of revenue mitigates undue fluctuations that may affect a single quarter.

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