How to Calculate Eps Growth Rate Over 10 Years

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10-Year EPS Growth Rate Calculator

Annual Growth Rate (CAGR):

function calculateEPSGrowth() { var startValue = parseFloat(document.getElementById('initialEPS').value); var endValue = parseFloat(document.getElementById('finalEPS').value); var years = parseFloat(document.getElementById('yearsPeriod').value); var resultDiv = document.getElementById('epsResult'); var valueDiv = document.getElementById('epsValue'); var descDiv = document.getElementById('epsDescription'); if (isNaN(startValue) || isNaN(endValue) || isNaN(years) || years <= 0) { alert("Please enter valid positive numbers for all fields."); return; } if (startValue = 15) { descDiv.innerHTML = "This represents high-performance growth, typical of aggressive expansion companies."; } else if (growthRate >= 7) { descDiv.innerHTML = "This is a solid, stable growth rate, often seen in established blue-chip companies."; } else if (growthRate > 0) { descDiv.innerHTML = "This is positive growth, but may be lagging behind broader market indices."; } else { descDiv.innerHTML = "The company has experienced a decline in earnings per share over this period."; } }

Understanding 10-Year EPS Growth Rate

Earnings Per Share (EPS) growth is one of the most critical metrics for long-term investors. It measures the portion of a company's profit allocated to each outstanding share of common stock. Calculating this over a 10-year period allows you to filter out short-term market noise and identify companies with a sustainable competitive advantage.

The CAGR Formula for EPS

To calculate the annual growth rate over a decade, we use the Compounded Annual Growth Rate (CAGR) formula. This accounts for the "compounding effect" of earnings growth year over year, rather than just taking a simple average.

Growth Rate = [(Current EPS / Initial EPS)^(1 / 10)] – 1

Step-by-Step Calculation Example

Imagine a company that had the following financials:

  • Year 1 EPS: $2.00
  • Year 11 EPS (10 years later): $5.19

To find the growth rate:

  1. Divide the final EPS by the initial EPS: 5.19 / 2.00 = 2.595
  2. Raise that result to the power of 1/10 (0.1): 2.595^0.1 = 1.10
  3. Subtract 1: 1.10 – 1 = 0.10
  4. Multiply by 100 to get the percentage: 10% Annual Growth

Why 10 Years Matters

Most economic cycles last between 5 to 8 years. By looking at a 10-year window, you ensure the company has been tested through at least one full economic cycle, including potential recessions or industry downturns. Consistent EPS growth over a decade is a primary indicator of a "Quality" stock according to fundamental analysis principles used by investors like Warren Buffett.

Key Factors to Consider

  • Share Buybacks: A company can increase EPS growth by reducing the number of shares outstanding, even if total net income is flat.
  • One-time Events: Look for "Adjusted EPS" to remove one-time tax credits or legal settlements that might skew the 10-year trend.
  • Consistency: A company that grows 10% every year is generally more valuable than a company that grows 50% one year and loses 40% the next, even if the final EPS is the same.

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