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What is the difference between organic and inorganic growth?

Organic growth is growth from the existing business, while inorganic growth comes from acquisitions or expansion. Investors love organic growth because it means the company can continue to increase in value without having to spend more money to acquire or expand the business.

If an investor is looking at a company’s income statement, its important to understand whether revenue growth was organic or inorganic.

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  • What is organic growth?

    Organic growth is when the company increases revenue in the existing business and excludes any growth from acquisitions or new businesses. One of the common metrics to analyze organic growth is same store sales. Solid organic growth indicates that the company can continue to grow without having to acquire or invest capital to continue expanding (i.e. new stores).

  • What is inorganic growth?

    Inorganic growth is when revenue growth that comes from acquiring another company or expanding the business. For example, if the company acquired another company that had $50 million of revenue, that additional $50 million of revenue represents inorganic growth. Its important to separate inorganic growth because that level of growth can only be sustained if the company continues to acquire or expand.