Organic Sales Growth is a performance measure that is popular in the finance/investment community. It measures the growth rate a company achieves by internally increasing sales/profits. Organic sales growth is a good indicator of how well management has used a company’s internal resources to increase sales/profits and whether managers have used their skills to improve the business.
For example, the measurement of organic growth excludes profits or growth from takeovers, acquisitions or mergers because these transactions do not result in profits/sales generated within the company; therefore such growth is not considered organic.
There is a difference between Net Sales Growth (under GAAP) and Organic Sales Growth (a non-GAAP measure). Organic Sales Growth is another useful of performance. The limitation of Organic Sales Growth is that it excludes items that have an impact on the company's sales.
It excludes items (such as the impact of foreign currency exchange that are not completely under management's control.
It excludes items (such as acquisition and divestiture activity) that do not reflect the main growth of a company.
Example of Organic Sales Growth (Excerpt reprinted from PR NewsWire):
"Tyco Electronics Reports Fiscal Fourth Quarter Results and 2008 Outlook. Tyco Electronics Ltd. (NYSE: TEL; BSX: TEL) today reported net sales of $3.6 billion for the fiscal fourth quarter ended Sept. 28, 2007, an increase of 11 percent over the prior-year period. Excluding currency effects, organic sales growth was 8 percent."