Earnings per Share Growth Rate Calculator

EPS Growth Rate Calculator

function calculateEPSGrowth() { var startEPS = document.getElementById('initial_eps').value; var endEPS = document.getElementById('final_eps').value; var years = document.getElementById('time_period').value; var resultBox = document.getElementById('result_container'); var errorBox = document.getElementById('error_msg'); // Reset display resultBox.style.display = 'none'; errorBox.style.display = 'none'; // Validate inputs if (startEPS === "" || endEPS === "" || years === "") { errorBox.innerHTML = "Please fill in all fields."; errorBox.style.display = 'block'; return; } var startVal = parseFloat(startEPS); var endVal = parseFloat(endEPS); var nVal = parseFloat(years); if (isNaN(startVal) || isNaN(endVal) || isNaN(nVal)) { errorBox.innerHTML = "Please enter valid numbers."; errorBox.style.display = 'block'; return; } if (nVal <= 0) { errorBox.innerHTML = "Time period must be greater than 0."; errorBox.style.display = 'block'; return; } // Calculation Logic for CAGR: (End/Start)^(1/n) – 1 // Note: CAGR mathematically requires Start Value to be positive. if (startVal <= 0) { errorBox.innerHTML = "Initial EPS must be positive for a standard CAGR calculation."; errorBox.style.display = 'block'; return; } var cagr = (Math.pow((endVal / startVal), (1 / nVal)) – 1) * 100; var totalChange = ((endVal – startVal) / startVal) * 100; // Output Results document.getElementById('eps_result').innerHTML = cagr.toFixed(2) + "%"; document.getElementById('total_change_result').innerHTML = totalChange.toFixed(2) + "%"; resultBox.style.display = 'block'; }

About the EPS Growth Rate Calculator

This Earnings Per Share (EPS) Growth Rate Calculator helps investors determine the Compound Annual Growth Rate (CAGR) of a company's profitability over a specific period. Analyzing EPS growth is fundamental for value investors and growth investors alike, as it indicates how rapidly a company is increasing its profits on a per-share basis.

How to Use This Calculator

To calculate the growth rate of a company's earnings, you need three specific data points found in financial statements:

• Initial EPS ($): The earnings per share value at the beginning of the period you are analyzing (e.g., 5 years ago).
• Final EPS ($): The earnings per share value at the end of the period (usually the trailing twelve months or most recent fiscal year).
• Time Period (Years): The number of years between the Initial EPS and the Final EPS.

Understanding the Formula

This tool uses the Compound Annual Growth Rate (CAGR) formula to provide a smoothed annual growth rate, rather than a simple average. This is the standard metric used in finance to compare growth over time.

The Formula:
CAGR = ( (Final EPS / Initial EPS) ^ (1 / n) ) – 1

Where "n" is the number of years.

Example Calculation

Let's say you are analyzing a tech company. Five years ago, their EPS was $2.50. Today, their EPS is $4.75.

Using the inputs:

• Initial EPS: $2.50
• Final EPS: $4.75
• Time Period: 5 Years

The calculation would result in a Compound Annual Growth Rate of roughly 13.70%. This means the company's earnings per share grew by an average of 13.7% every year during that period.

Why is EPS Growth Important?

EPS Growth is a key driver of stock prices. While revenue growth shows that a company is selling more products, EPS growth shows that the company is actually becoming more profitable for shareholders. Consistent high EPS growth often leads to:

• Higher Stock Valuation: Investors are willing to pay a higher P/E ratio for companies with high growth.
• Dividend Potential: Growing earnings provide the cash flow necessary to increase dividends.
• Share Buybacks: Companies with excess earnings may buy back shares, further inflating EPS.

Frequently Asked Questions

What is a good EPS growth rate?

While this varies by industry, an EPS growth rate above 15% is generally considered excellent for growth stocks. For stable, blue-chip companies, a rate between 5% and 10% is considered healthy.

Can I calculate EPS growth with negative earnings?

The standard CAGR formula cannot handle negative starting numbers (it results in mathematical errors or undefined imaginary numbers). If a company had negative earnings in the past and positive earnings now, it is better to look at the absolute dollar change or "Turnaround" metrics rather than a percentage growth rate.

Does this calculator account for inflation?

No, this calculator computes nominal growth based on the raw financial data provided. To understand real growth, you would need to adjust the Final EPS for inflation before calculating.