How to Calculate Eps Growth Rate Over 5 Years

by

EPS Growth Rate Calculator (5-Year CAGR)

Annualized Growth (CAGR):
Total 5-Year Growth:

function calculateEPSGrowth() { var start = parseFloat(document.getElementById('startEPS').value); var end = parseFloat(document.getElementById('endEPS').value); var resultDiv = document.getElementById('epsResult'); var cagrSpan = document.getElementById('cagrValue'); var totalSpan = document.getElementById('totalGrowthValue'); var analysis = document.getElementById('growthAnalysis'); if (isNaN(start) || isNaN(end)) { alert('Please enter valid numeric values for EPS.'); return; } if (start 15) { analysis.innerHTML = "Analysis: This company shows aggressive growth, significantly outperforming the historical market average."; } else if (cagr > 7) { analysis.innerHTML = "Analysis: This is a healthy, steady growth rate, typical of established successful companies."; } else if (cagr > 0) { analysis.innerHTML = "Analysis: The company is growing, but at a pace that may be slower than inflation or industry peers."; } else { analysis.innerHTML = "Analysis: Negative growth indicates declining profitability over this 5-year period."; } }

Understanding 5-Year EPS Growth

Earnings Per Share (EPS) growth is one of the most critical metrics for stock investors. It represents the portion of a company's profit allocated to each outstanding share of common stock, and its growth indicates the company's ability to generate value for shareholders over time.

The Formula for 5-Year CAGR

To find the average annual growth rate (Compound Annual Growth Rate) between two periods, we use the following mathematical formula:

CAGR = [(Ending EPS / Beginning EPS)^(1 / n)] – 1

Where n is the number of growth intervals (which is 4 intervals to get from the start of Year 1 to the end of Year 5).

Why Use a 5-Year Period?

One year of earnings growth can be an anomaly caused by a one-time tax credit or a singular massive sale. A 5-year period is widely considered the "sweet spot" for fundamental analysis because:

  • It smoothes out short-term economic fluctuations.
  • It covers a typical business cycle.
  • It demonstrates a management team's ability to sustain performance.
  • It provides enough data to establish a reliable trend for valuation models like the PEGY ratio.

Example Calculation

Suppose a company had the following performance:

  • Year 1 EPS: $2.00
  • Year 5 EPS: $3.50

The total growth is 75%. However, the CAGR (Annualized Growth) is calculated as:

(3.50 / 2.00)^(1/4) – 1 = 15.02%

This means the company grew its earnings by approximately 15% every year for four consecutive years to reach the final result.

Leave a Comment