1. What is Earnings Per Share Growth Calculator?
Definition: This calculator computes the EPS growth rate, showing profit growth per share.
Purpose: Helps investors evaluate a company’s profitability trend and investment potential.
2. How Does the Calculator Work?
The calculator supports two modes:
Simple Growth Rate:
\( \text{Growth Rate} = \frac{\text{EPS}_{\text{new}} - \text{EPS}_{\text{old}}}{\text{EPS}_{\text{old}}} \times 100 \)
Where:
- \( \text{EPS}_{\text{new}} \): New EPS (dollars/share)
- \( \text{EPS}_{\text{old}} \): Old EPS (dollars/share)
CAGR:
\( \text{CAGR} = \left( \frac{\text{EPS}_{\text{final}}}{\text{EPS}_{\text{initial}}} \right)^{\frac{1}{P}} \times 100 - 100 \)
Where:
- \( \text{EPS}_{\text{final}} \): Final EPS (dollars/share)
- \( \text{EPS}_{\text{initial}} \): Initial EPS (dollars/share)
- \( P \): Number of Periods (years)
Steps:
- Select calculation mode (Simple or CAGR).
- Enter required EPS values and periods (if CAGR).
- Calculate growth rate as a %.
- Display with 2 decimal places.
3. Importance of EPS Growth
Calculating EPS growth is crucial for:
- Investment Insight: Identifies undervalued or overvalued stocks.
- Performance Trend: Tracks profitability over time.
- Growth Assessment: A rate >15% over 3+ years is often considered good.
4. Using the Calculator
Example 1 (Simple): Old EPS = $2.00, New EPS = $2.50:
- Old EPS: $2.00
- New EPS: $2.50
- Growth Rate: \( \frac{2.50 - 2.00}{2.00} \times 100 = 25.00\% \)
- Result: \( 25.00\% \)
Example 2 (CAGR): Initial EPS = $2.00, Final EPS = $2.50, Periods = 3:
- Initial EPS: $2.00
- Final EPS: $2.50
- Periods: 3 years
- CAGR: \( \left( \frac{2.50}{2.00} \right)^{\frac{1}{3}} \times 100 - 100 \approx 7.71\% \)
- Result: \( 7.71\% \)
Example 3 (CAGR, High Growth): Initial EPS = $1.00, Final EPS = $2.00, Periods = 5:
- Initial EPS: $1.00
- Final EPS: $2.00
- Periods: 5 years
- CAGR: \( \left( \frac{2.00}{1.00} \right)^{\frac{1}{5}} \times 100 - 100 \approx 14.87\% \)
- Result: \( 14.87\% \) (Good growth)
5. Frequently Asked Questions (FAQ)
Q: What is a good EPS growth rate?
A: >15% over 3+ years is typically considered excellent, but compare with stock price.
Q: Why use CAGR?
A: CAGR smooths growth over multiple years, useful for long-term analysis.
Q: Where to find EPS data?
A: Check the income statement or Profit and Loss statement of public companies.
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