Earnings Per Share (EPS) Growth Rate Calculator

What Is Earnings Per Share (EPS) Growth Rate?

Earnings Per Share (EPS) measures how much of a company's net profit is attributable to each outstanding common share. It helps investors understand how much profit a company generates for each share they own.

The EPS growth rate shows the percentage change in a company's earnings per share between two periods, such as one year to the next. It helps investors evaluate whether a company's profitability is improving, declining, or staying the same.

• Positive growth: EPS has increased compared with the previous period, which may indicate improving profitability.
• Negative growth: EPS has decreased, which may indicate lower profitability.
• Zero growth: EPS has remained unchanged between the two periods.

It's important to understand that EPS growth is not the same as revenue growth or stock-price growth. Revenue growth shows how much a company's sales have increased, while EPS growth reflects the change in profit attributable to each common share. Stock-price growth, on the other hand, shows how much the market price of a share has increased or decreased.

For example, a company may report higher revenue but experience slower EPS growth if its expenses also increase. Similarly, a company's EPS may grow even when its stock price does not rise. Investors often use EPS growth alongside other financial measures to get a clearer picture of a company's performance and make more informed investment decisions.

Earnings Per Share Growth Rate Formula

The earnings per share (EPS) growth rate measures how much a company's earnings per share have increased or decreased compared with a previous period. It helps investors understand whether a company is becoming more profitable on a per-share basis.

The earnings per share growth formula is:

EPS Growth Rate = Current EPS – Previous EPS ÷ Previous EPS × 100

Here:

• Current EPS: The company's earnings per share for the current period.
• Previous EPS: The earnings per share for the previous period.
• EPS Growth Rate: The percentage change in earnings per share.

When the previous EPS is positive, its absolute value is simply the previous EPS. However, if the previous EPS is zero, the growth rate is undefined because division by zero is not possible. If the previous EPS is negative, the standard percentage formula can be misleading, so the change in EPS should be explained separately.

Example

Suppose a company reported EPS of $4 last year and $5 this year. To calculate its growth rate, subtract the previous EPS from the current EPS, divide the difference by the previous EPS, and multiply by 100.

EPS Growth Rate = 5 – 4 ÷ 4 × 100 = 25%

The company's EPS growth rate is 25%, meaning its earnings per share increased by 25% compared with the previous year.

How to Use the EPS Growth Rate Calculator

Using the EPS Growth Rate Calculator is simple. Enter the company's beginning and ending earnings per share (EPS), specify the number of years between the two values, and calculate how much EPS has grown or declined over the period.

1. Enter Beginning EPS: Enter the company's earnings per share at the start of the period you want to analyze.
2. Enter Ending EPS: Enter the earnings per share at the end of the period. Make sure both EPS values use the same currency and accounting basis.
3. Enter the Number of Years: Specify the number of years between the beginning and ending EPS values. This helps calculate the compound annual growth rate (CAGR).
4. Choose Additional Options: Enable Show Calculation Breakdown to view the steps used to calculate the result. Select Show Year-by-Year Growth to see annual growth details, if the calculator provides this breakdown.
5. Review Your Results: Calculate the growth rate and review the percentage to understand how the company's EPS has changed over the selected period. A positive rate indicates growth, while a negative rate indicates a decline.

Frequently Asked Questions (FAQs)