What is growth after removing 90 of acquired revenue?
Reveal the worked answer
Approximately 1.1%.
(1,000−90−900)/900.
Fundamentals · FUND-02 · Core
Revenue quality
How much growth is repeatable?
What you will learn and prerequisites
- Explain the mechanism in the lesson question.
- Reproduce the worked comparison and recognize its failure case.
Read first: Understand the business
Headline growth can come from units, pricing, acquisitions, currency or timing. These sources have different durability and capital requirements. Strong reported growth can coexist with weak underlying demand.
A useful analysis builds a revenue bridge rather than repeating the top-line percentage.
Understand the mechanism
Separate continuing-business growth from acquired revenue. Distinguish recurring contracts, bookings and recognized sales; none is automatically cash collected. Concentration, credit terms and retention matter where relevant.
Compare like periods and definitions. Seasonality or a changed reporting calendar can distort simple comparisons.
Walk through the process
Reconcile the growth explanation with segments, receivables and cash. If receivables grow faster than sales, ask why rather than immediately declaring misconduct.
Determine whether demand, price, mix or acquisition spending supports the forecast. Each needs different evidence.
Evidence and decision boundary
These are original fictional teaching figures, not a company screen. Actual analysis should use primary disclosures and distinguish management's explanation from your inference. Favorable or unfavorable evidence depends on the specific business, valuation and risk; no single ratio establishes a recommendation.
A worked example
Harbor rises from 900 to 1,000 million revenue, an 11.1% increase. If 90 of current revenue comes from a newly included acquisition, the continuing business contributes 910—only 10 above the prior 900, about 1.1%.
The acquisition may still add value, but that is a different thesis requiring its purchase price and returns. The graph separates prior, continuing and total revenue.
Open the calculation without leaving this lesson
Revenue quality—worked comparison
Vertical: Revenue (USD millions)
Horizontal: Prior / continuing business / current total
1. Fictional example
Read the graph as a data table
| Prior / continuing business / current total | Fictional example |
|---|---|
| 1 | 900 |
| 2 | 910 |
| 3 | 1,000 |
What would invalidate the reading?
Calling acquisition-driven growth organic builds valuation on the wrong driver. Ignoring the acquisition's capital cost overstates value creation.
Check your understanding
Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.
What is the critical failure to avoid?
Reveal the worked answer
Calling acquisition-driven growth organic builds valuation on the wrong driver. Ignoring the acquisition's capital cost overstates value creation.
Explain this risk before treating the example as a decision rule. A correct calculation does not guarantee a favorable market outcome.
Return to the question: How much growth is repeatable? State the observed facts, the assumptions and the failure condition separately.
Sources, assumptions and downloadable script
External references support definitions and conventions. Worked scenarios and prose are original. No current quotes or dealer inventory are claimed.
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