Revenue Growth And Inflation

Question:

If a business grows its revenues by three per cent, but inflation is 6%, isn't that negative growth? They clearly sold fewer units of whatever they are selling, 3% less. I read lots of stock analysts articles about stocks in which they claim that 8% growth in the last twelve months is pretty darn good. However, with inflation at about 8% for most of that time, did they really "grow"? Isn't this a misrepresentation of the true performance of the company?

Answer:

By definition, revenue equals price of product times the number of units of the product sold. If revenue grows by 3% (in dollar terms) and inflation is 6%, it means there is negative "real" growth, meaning the purchasing power of that revenue growth (what it can buy) has fallen by 3%. A business may show positive growth in nominal terms but show negative growth in real terms.