How to Analyse if the Business is Growing

My Quick Framework for Validating if the Business Is Growing

 

Key Message

• This 2x2 matrix is plotted to identify if the business is growing organically.
• X-Axis has Revenue Contribution which is the additional contribution from the previous comparison (like year or qtr)
• Y-Axis X has EBITDA Contribution which is the additional contribution from the previous comparison (like year or qtr)

Meaning of Each Quadrant

Black Hole

• In essence, when both contributions exhibit a downward trend, it can be inferred that the enterprise is undergoing a decline in terms of expansion and stability.

Sinking & Milking

• When the contribution to revenue is declining, but the contribution to EBITDA is growing, the business is still able to increase its EBITDA contribution despite shrinking. In other words, it is extracting more margin from a declining entity

Stressed Growth

• When revenue contribution increases while EBITDA contribution decreases, it indicates that the business is growing, but its EBITDA contribution is under pressure. As a result, margins are facing fierce competition.

Growth on Steroids

• The simultaneous growth of revenue and EBITDA is a reliable indicator of a robust and rapid business expansion. This signifies a positive trend in the company's financial performance and can be viewed as a favourable development by stakeholders. 

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