Earnings Per Share Growth Calculator

This calculator will help you analyze the growth rate of earnings per share of any company. Thanks to this, you can make better investment decisions. 

If you are unfamiliar with the Earnings per Share metric, you can find a detailed EPS definition here.

In this brief article, we explain the concept of EPS Growth, how it differs from the EPS growth rate, how you can calculate both indicators, and how to interpret the results of those calculations.

First, let's discuss the differences between the two metrics.

What is Earnings Per Share Growth?

Earnings Per Share Growth represents the total change in the value of EPS. It is usually presented as a percentage value rather than an absolute price change.

EPS growth shows how much earnings per share changed over a specific period. 

• EPS growth shows the cumulative change in EPS value over the analyzed period.
• EPS growth is presented as a percentage value,
• EPS growth can take both positive and negative values since the earnings may increase or drop over time,
• EPS growth represents the cumulative growth over time and does not consider the period length.

You can use Earnings Per Share Growth to compare the company's performance over different periods or against competitors or even the market index.

Although EPS Growth is a universal metric that reveals valuable insights about a company's performance in the past, it has a significant limitation. It does not consider the time needed to achieve growth. 

What is Earnings Per Share Growth Rate?

The Earnings Per Share Growth Rate is an enhanced version of the EPS Growth metric. It reveals the pace of EPS growth over time. 

This indicator makes it easier to compare the companies and helps better forecast prospects for the business.

For example, if Earnings Per Share grew by 30% over five years, the EPS Growth would equal 30%, and EPS Growth Rate would equal 5.39% per year.

• EPS Growth Rate reveals the average EPS growth rate for every analyzed period.
• EPS Growth Rate is calculated as a percentage value.
• Just like EPS growth, the EPS growth rate may also take positive or negative values.
• EPS Growth Rate is a good indicator of a company's performance over a long period.

EPS CAGR

EPS Growth Rate is a metric derived directly from CAGR, which stands for Compound Annual Growth Rate, and is a general metric for the average annual growth of the investment. 

Since EPS Growth Rate is a CAGR applied to EPS Growth, it is also called EPS CAGR or Earnings Per Share CAGR.

For more details, visit our CAGR calculator.

How to calculate Earnings Per Share Growth?

If you wish to calculate Earnings Per Share Growth, input the EPS values for your company from the beginning and end of the analyzed period into our EPS calculator. 

Alternatively, you can use the EPS Growth formula below.

The earnings per share growth formula

EPS_growth = (EPS_final - EPS_initial) / EPS_initial * 100%

Where:

• EPS_final - earnings per share at the end of the analyzed period,
• EPS_initial - earnings per share at the beginning of the analyzed period.

How to calculate EPS CAGR?

EPS CAGR can also be calculated using our calculator. You may also use the CAGR formula to calculate it on your own. However, this equation is more complex, so we recommend using Calcopolis to determine its value.

The EPS CAGR formula

EPS_growth_rate = (((EPS_final - EPS_initial) / EPS_initial )^(1/n) - 1) * 100%

or simply

EPS_growth_rate = ((EPS_growth)^(1/n) - 1) * 100%

Where:

• EPS_final - earnings per share at the end of the analyzed period,
• EPS_initial - earnings per share at the beginning of the analyzed period.
• n - the length of the analyzed period in years.

What is a good EPS growth rate?

The EPS growth rate may be considered good if it's equal to or higher than the industry average in the same time frame. 

Remember that markets are cyclical, so EPS CAGR values may be considered good or bad depending on the economic trends.

Limitations of EPS growth

In order to drive to the right conclusions, you, as an investor, must be aware of the following limitations of this metric.

• EPS Growth can be distorted by accounting practices. Companies can use various accounting techniques to manipulate their reported earnings and thereby affect the EPS calculation. Therefore, the EPS growth may not be a true reflection of the company's actual growth rate.

• EPS Growth doesn't take into account the impact of stock buybacks and issuance. A company can increase its EPS by buying back its own shares, reducing the number of shares outstanding, even if its earnings have remained stagnant. Conversely, issuing new shares can dilute the EPS and make it appear as if the company's earnings have decreased, even if its actual profitability has remained the same.

• EPS Growth doesn't consider the impact of inflation or currency fluctuations. EPS Growth can be affected by changes in purchasing power, which can lead to misleading results.

• EPS Growth doesn't provide any information about the company's cash flow or financial health. A company with a high EPS growth rate may still have significant debt, low cash reserves, or other financial issues that can cause problems down the line.

• EPS Growth doesn't provide any information about the future prospects of the company. Even if a company has a high EPS growth rate, it may not be sustainable, and the company may face challenges in the future that could impact its earnings.

In conclusion, while EPS Growth is a useful metric, it has several limitations, and investors should consider other financial metrics to perform a complete analysis of the company's performance.

Similar metrics

The EPS growth calculator is one of many tools you may find helpful. Calcopolis provides an extensive set of online calculators for smart investors. 

Before you invest, it is essential to perform an in-depth analysis of a company. The Enterprise Value calculator helps you determine the company's value using its current market capitalization and financial condition.

P/E ratio allows you indentify stock opportunities, Price-to-Earnings Growth lets you identify the stocks with the best growth potential, and the Present Value of Growth Opportunities allows you to quantify the value of a company's future growth.

Holding Period Return is another method for determining return from investment in stocks. 

Authors

Created by Lucas Krysiak on 2022-10-18 17:59:26 | Last review by Mike Kozminsky on 2022-10-21 19:18:29