How Do You Know If a Company Is Growing?

“Is it growing?” sounds like a yes-or-no question. In practice, a company can be growing in one way and shrinking in another. The trick is to look at a few things together, and over more than one year.

1. Sales (also called revenue)

Sales are all the money customers paid the company. If sales are rising, more people want what the company makes — or they're paying more for it. This is usually the first place to look.

One year can mislead you, though. A great year might be followed by a flat one; a bad year might have a one-off cause. That's why it helps to look at the average yearly growth over three years. It smooths out the bumps.

2. Profit

Sales growth is good. Sales growth that turns into more profit is better. If sales rise 10% but profit falls, the company may be cutting prices or spending heavily to win customers. That isn't necessarily bad — but it's worth knowing.

For shareholders, the most useful version is profit per share (you'll see it called EPS). It accounts for the fact that a company can issue new shares, which slices the same profit into more pieces.

3. Cash

Finally, check whether the business is producing more cash over time — not just accounting profit. We cover this in What Is Free Cash Flow?

An example: two bakeries

Bakery A's sales go $500k, $540k, $580k, $630k, $680k — steady, every year. Bakery B goes $500k, $700k, $520k, $560k, $690k — it ends in about the same place, but with a lot more drama along the way. Both “grew”. Only one of them grew in a way you could count on.

That's why Sixth Element shows several years of sales side by side, and describes the trend in words, rather than showing a single growth number.