The four engines of company growth
When a company reports higher revenue, the first question is: where did the growth come from? Most growth comes from four engines.
1. Volume
Selling more units to existing customers or adding new customers in the same market. Durable if the market is growing or the company is gaining share.
2. Price
Raising prices, or benefiting from inflation. It lasts only while customers accept it, so look at whether volumes held when prices rose.
3. Mix
Shifting sales toward higher-value products or customers. It can lift margins without lifting volume and often reflects brand strength or product development.
4. New markets and acquisitions
Entering new regions or buying other businesses. It can be valuable, but it needs capital, and acquired growth should be checked for the returns it earns on the price paid.
At a glance
| Engine | What drives it | What to check |
|---|---|---|
| Volume | More units or customers | Market growth, share gains, capacity |
| Price | Higher selling prices | Whether volumes held when prices rose |
| Mix | More high-value products or customers | Margin trend, brand strength |
| New markets and acquisitions | New regions or purchased businesses | Capital used, return on the price paid |
A short routine
- Ask the company's disclosures for the split of growth between volume, price and mix.
- Judge which engines are repeatable.
- Check whether the cash cost of growth shows up in working capital, capex or debt.
Limits
Companies disclose the split differently, and some do not disclose it. Where information is missing, say so rather than estimating.