Penetrating Revenue Growth

The top-line income statement number, revenue, is in most cases the most important number driving the bottom line so reported revenue growth draws attention. Understanding where the growth is coming from is crucial. Revenue is composed of sales and fees such as franchise fees and royalty fees. They need to be separated. But the drivers of the sales component need also to be identified. The following diagram decomposes growth in the sales component into its drivers:

An example of sales generated by investment asset growth or not is same store sales versus sales from new store openings in retail. The P, Q, FX breakdown is discussed in chapter 10.