Revenue growth

Revenue growth measures how much a company's top line expanded or contracted compared to a prior period, usually the same quarter or year one year earlier. It is the most basic growth ratio and the starting point for judging whether a business is actually getting bigger.

The formula is: (Current period revenue - Prior period revenue) / Prior period revenue x 100

A fast growing company is usually capturing more of a market before it matures. A slowing or negative growth rate can mean a market is saturating or competition is intensifying, though it can also come from a one-off event like losing a large customer or a prior period that included an unusual spike. Because revenue growth can come from more customers, higher prices, acquisitions, or currency effects rather than only organic demand, it is worth checking what is actually driving the number rather than taking the percentage at face value.

Revenue growth matters most when read alongside a company's valuation ratios. A high P/E paired with fast revenue growth is a very different situation from the same P/E paired with growth near zero, since part of what investors are paying for is the expectation that the growth continues.