What Is Revenue Growth Rate? Formula, Example and Stock Analysis

# What Is Revenue Growth Rate?

Revenue growth rate measures how quickly a company's sales or operating revenue is increasing or decreasing over a period.

Formula

Revenue Growth Rate = (Current Revenue − Previous Revenue) ÷ Previous Revenue × 100

Example

Previous revenue = ₹1,000 crore.

Current revenue = ₹1,200 crore.

Growth:

(1,200 − 1,000) ÷ 1,000 × 100 = 20%

NIFTY-Style Example

| Year | Revenue |

|---|---:|

| FY2024 | ₹8,000 Cr |

| FY2025 | ₹9,200 Cr |

| FY2026 | ₹11,040 Cr |

Growth was 15% and then 20%, showing acceleration.

Revenue Growth vs Profit Growth

Revenue growth does not automatically mean profit growth.

If revenue rises 15% but costs rise faster, margins can decline.

Therefore examine revenue alongside:

•operating margin,

•EBITDA,

•EBIT,

•net profit,

•EPS, and

•operating cash flow.

CAGR

For multiple years:

CAGR = (Ending Revenue ÷ Beginning Revenue)^(1/n) − 1

CAGR helps investors understand the compound pace of growth rather than focusing on a single year.

Quality of Growth

Ask why revenue is increasing:

•higher volumes,

•price increases,

•new products,

•new markets,

•acquisitions, or

•currency effects.

Also check whether receivables, debt and cash flow are behaving sensibly.

Warning Signs

Be cautious when revenue rises but:

•receivables grow much faster,

•cash flow does not follow,

•margins deteriorate,

•debt rises rapidly, or

•growth depends heavily on acquisitions.

Final Thoughts

Good analysis asks three questions:

How fast is revenue growing?

Why is it growing?

Is the growth translating into profit and cash flow?

For related analysis, see What Is Revenue?, What Is EPS?, and What Is Free Cash Flow?.

> Disclaimer: This article is for educational purposes only and is not investment advice.