We've been talking a lot about Gross Profits and moving up the income statement lately. Let's talk about growth

What is the best kind of growth? Some ability to constantly raise prices on existing customers is usually good. Some ability to increase the value of each order from a customer in terms of not just pricing but also physical volume is usually good.

And then growing the number of customers who are similar to existing customers is also good.

Getting entirely new kinds of customers can be very good for the long-term, but it’s the kind of thing you need to analyze.

Are these customers going to be – over their entire lifetime – much better, much worse, etc. than existing customers? This can show you how a company is likely to change for better or worse.

It’s a leading indicator of what things like returns on equity will be in the future.

About price changes: Sometimes, companies give you this information directly. More commonly, you have to find this information through backing out changes in volume.

So, the company might say that revenue in a certain segment was up 30% while unit growth was 20%. If there are different products sold in this segment, then you don’t know exactly how much all the different prices were raised.

But, you can guess that the company pushed prices up something like 10% over last year. The importance of such a big price increase differs a lot depending on the type of business. If $SBUX increases its prices by 6% year-over-year, that price increase is very likely to stick.

If a commodity type product sees a price increase of even 16%, this can be a lot less meaningful. It’s not likely to last. The company just sells at the market price. And the market price is volatile.

Current earnings – and whether they miss or beat analyst estimates and market expectations – are very important in determining short-term results in the stock. But, they are less important in determining long-run results.

This is because just knowing the bottom line result is less helpful in projecting the future of the business than in having more detailed trend information further up the income statement.