Organic vs inorganic growth
Factual definition
Organic growth comes from changes in the existing business; inorganic growth comes from acquisitions. Neither source guarantees a higher valuation multiple: durability, economics, investment needs, integration and risk matter.
Separate existing-business growth from acquired revenue
Hypothetical annual US$ millions: on a consistent business perimeter and currency basis, existing-business revenue rises from 100 in year 1 to 105 in year 2, or 5% organic growth. An acquisition adds 20 of recognized revenue in year 2, producing total revenue of 125.
Assume no other perimeter or currency changes. The revenue level of 125 is distinct from the 25 increase.
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| Measure | Year 1 | Year 2 |
|---|---|---|
| Existing business | 100 | 105 |
| Acquired revenue included | 0 | 20 |
| Total revenue | 100 | 125 |
Recognized acquisition revenue is not a full-year run rate
Suppose the acquired business in the example was purchased halfway through Year 2 and contributed the stated US$20m only after closing. That does not establish that it would have earned exactly US$40m over a full year; seasonality and the actual earlier period must be checked.
A pro forma full-year comparison puts both businesses on a consistent ownership perimeter for the stated periods. It answers a different question from the revenue actually consolidated after the acquisition date.
Organic growth then needs a like-for-like comparison within the defined perimeter, including the chosen currency treatment. A company cannot demonstrate stronger customer demand merely by purchasing another revenue stream.
For a buy-and-build forecast, separate revenue acquired, growth in the existing operations and any proposed integration benefit. Keeping those sources distinct makes it possible to identify which part of the plan missed expectations.
Where Organic vs inorganic growth fits
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