Over the last couple weeks I've been writing about how companies grow and why it's so important to see how the growth is coming because not all growth is created equal. Today I wanted to give an example of the differences that can arise if you just look at the numbers as reported instead of digging into them yourself. But first a quick recap.
Revenue growth is one of my favorite metrics to look at for a company. I don't have any numbers to back up my claim, but I think you'll all agree that a growing revenue stream leads to rising profits which leads to my personal favorite, a sustainably increasing dividend. It's pretty safe to say that you won't find many companies that have a lengthy dividend growth streak that haven't also grown their revenue. That's why I feel it's so important to monitor the top line and how it's growing.
Companies have 4 ways to organically grow the top line and another way to manufacture that growth.
The 4 organic growth avenues are:
1. Price Increases - Real
2. Volume Growth - Real
3. Market Share - Real
4. New Products - Real
The truly excellent companies are able to capitalize on all 4 of these sources and take advantage of opportunities as they come. Whenever you find a company that is able to increase prices while also growing their volumes you ears should perk up.