Term · Profitability & Growth
Organic growth
In briefOrganic growth is the increase in revenue or earnings from the existing business, without acquisitions, currency effects or major special effects. Since small caps often grow through acquisitions, it shows whether the core business is actually expanding.
Definition
Organic growth describes revenue or earnings growth from the existing business without acquisitions, currency effects or major special effects.
How it is calculated
Formula. Organic growth = reported growth adjusted for M&A, divestments, currencies and other special effects.
Why it matters for small caps
Small caps often grow through acquisitions; organic growth shows whether the core business is actually expanding.
Common misreadings
- Reported growth is often confused with organic growth, although acquisitions can mask the operating development.
In the process
Frequently asked
What is organic growth?
It is the growth achieved under a company's own steam, without takeovers or special effects. It thus measures the momentum of the existing business.
How is organic growth determined?
You adjust the reported growth for M&A, divestments, currencies and other special effects. What remains is the increase from the core business.
Which mistake happens when looking at growth?
Reported and organic growth are often confused. Acquisitions can mask the operating development and create too positive a picture.
Related terms
Sources
Primary
ESMA – Guidelines on Alternative Performance Measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
Methodology
U.S. SEC – Non-GAAP Financial Measures
https://www.sec.gov/rules-regulations/staff-guidance/corporation-finance-interpretations/non-gaap-financial-measures
https://www.sec.gov/rules-regulations/staff-guidance/corporation-finance-interpretations/non-gaap-financial-measures
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.