What is organic growth? Why is it important? How has the academic world defined organic growth? How has the business world looked at organic growth?

The interest and focus on organic growth in a meaningful way is a recent phenomenon, which grew out of the financial scandals of the late 1990s and early years of the following decade. What the public learned from these scandals was that (1) there are different types of earnings; (2) companies can create earnings in different ways; (3) earnings can be created by accounting recognition, accounting policies, accounting adjustments, accounting elections, and valuations; (4) earnings can be created by financially engineered transactions, pension fund gains, related party transactions, currency gains, cookie jar reserves, classification of investment transactions, channel stuffing, etc.; (5) earnings management is more widespread than many thought; and (6) yes, earnings management can turn into earnings manipulation A good summary of earnings management techniques can be found in Nelson, Elliott, and Tarply (2003).

Fundamentally, we learned that companies frequently produce non-operating or non-core earnings in order to meet Wall Street's expectations of consistent quarterly earnings growth. Certain types of earnings are derived from one-time non-recurring transactions. Should that type of earnings be valued in the same manner as earnings from the operating business? Should companies be required to disclose the types, character, or quality of their earnings? Which is a more valuable predictor of future business operations and their sustainability – cashflow operating results or the non-operating earnings?