Organic Growth Versus Acquired Growth
A headline of 15 percent revenue growth sounds impressive. The real question is how much of it the existing business produced by itself.
Why this matters for beginners
Bought growth costs money, carries integration risk and cannot be repeated forever. Learning objectives: split headline growth into organic, acquired and currency parts, and judge which kind of growth you are paying for.
Main explanation
Organic growth is revenue growth from the business the company already owned, excluding acquisitions and currency movements. It shows whether customers want more of what the company sells.
Acquired growth comes from buying other companies. Their revenue is added from the deal date, which lifts the headline number even if the core business is flat.
Currency effects matter for global companies. If a European company earns in dollars and the dollar strengthens, reported euro revenue rises without selling anything extra. Many companies report constant-currency growth to strip this out.
Comparable-store sales, also called like-for-like sales, are the retail version of organic growth: sales from stores open at least a year.
Integration risk is the danger that an acquired business underperforms, loses key staff or costs more to combine than expected. Repeated acquisitions can hide a slowing core.
Example: revenue grows from 100 to 115. Acquisitions added 10 and currency added 3, so organic growth was only 2 percent. The headline 15 percent was mostly bought or borrowed from exchange rates.
Example using a real company
A company like MercadoLibre reports growth in both US dollars and local currencies, which shows how much exchange rates change the headline picture.
- →Headline +15 percent = organic +2, acquisitions +10, currency +3.
- →Retailer with total sales +8 percent but comparable-store sales -1 percent: growth came from new stores.
Common beginner mistakes
- ✕Treating headline growth as proof the core business is thriving.
- ✕Ignoring how much was paid for acquired revenue.
- ✕Forgetting that currency can reverse next year.
Key terms
- Organic growth
- Growth from the existing business, excluding acquisitions and currency.
- Constant currency
- Growth recalculated as if exchange rates had not changed.
- Integration risk
- The risk that combining an acquired business goes worse than planned.
Key takeaways
- 01Split headline growth into organic, acquired and currency parts.
- 02Organic growth best shows underlying demand.
- 03Bought growth has a price and a risk.
Check yourself
- 01Revenue rose 15 percent: acquisitions added 10 points and currency 3 points. What was organic growth?
- 02What does organic growth exclude?
- 03Why do companies report constant-currency growth?
- 04What do comparable-store sales measure?
- 05Why can repeated acquisitions be a warning sign?
Try the concept on a real company
Open a company in the Analyzer and check whether its growth comes from the existing business or from acquisitions.
Educational examples only. Not buy or sell recommendations.