Revenue

Three ways to measure revenue growth

A headline growth figure can hide very different stories. Nordic reports usually break it down three ways:

• Reported growth is the change in revenue in the report currency, compared with the same period a year earlier. It is what the income statement shows.
• Growth in comparable currencies (also called constant currency) removes the effect of exchange rates. A Finnish company that sells in US dollars and Chinese yuan reports lower euro revenue when those currencies weaken, even if it sold exactly as much. Many companies give their revenue guidance in comparable currencies for this reason.
• Organic growth also removes acquisitions and divestments. It shows how much the business the company already owned grew. Acquisitive companies can report strong total growth with little or no organic growth.

Comparable-currency and organic growth are alternative performance measures: the company defines them and reconciles them to reported revenue.

How to read revenue in a quarterly report

• Compare with the same quarter a year earlier. Retail, construction and consumer businesses are seasonal, so the second quarter is not comparable with the first.
• Look at the last twelve months. Adding up the four latest quarters smooths out seasons and gives a current annual run rate. The table below shows it for every company we track.
• Split growth into volume and price. Revenue can grow because the company sold more, or because it raised prices. Price-driven growth during inflation is less durable than volume growth.
• Check the segments. Group growth is an average. One fast-growing business can hide a shrinking one; see segment reporting.
• Watch orders for project businesses. Engineering and capital goods companies such as KONE, Wärtsilä and Konecranes report orders received and the order book. Orders lead revenue by months or years, so they are an early signal of where revenue is heading.

What revenue does not tell you

• Revenue is not profit. A company can grow revenue by cutting prices or buying market share at a loss. Always read revenue together with operating profit and margins.
• Timing follows accounting rules. Under IFRS 15, long projects can be recognised over time as the work progresses, while product sales are recognised on delivery. Two companies with the same orders can show different revenue patterns.
• Gross or net matters. A company that acts as an agent records only its commission as revenue, while one that acts as principal records the full sale. This makes revenue of marketplaces and resellers hard to compare.
• Revenue is not cash. Revenue is recognised when control passes to the customer, not when the customer pays. Growing receivables can mean customers are paying later.

The figures on this page are each company’s reported revenue in its own report currency, without currency conversion, so compare growth rates rather than amounts across companies.

When revenue is recognised: the IFRS 15 model

IFRS 15 sets out five steps that every company follows:

1. Identify the contract with the customer.
2. Identify the separate promises in it, called performance obligations, for example equipment, installation and a maintenance service.
3. Determine the transaction price, including variable parts such as volume discounts and bonuses.
4. Allocate the price to each performance obligation.
5. Recognise revenue when each obligation is satisfied: at a point in time, such as delivery of a product, or over time, such as a long construction project or a service contract.

For investors the most important result is timing. Equipment makers and project businesses often recognise revenue over time, while retailers recognise it at the point of sale. See revenue recognition for more.