How to Calculate Future Eps Growth Rate

Future EPS Growth Rate Calculator

Calculation Results

Understanding Future EPS Growth Rate

The Earnings Per Share (EPS) growth rate is one of the most critical metrics used by equity analysts and investors to determine the intrinsic value of a company. It measures the percentage increase in a company's profit allocated to each outstanding share of common stock over a specific period.

The Growth Rate Formula

To calculate the compounded annual growth rate (CAGR) of future earnings, we use the following mathematical formula:

Growth Rate = [(Future EPS / Current EPS)^(1 / n) – 1] * 100

Where:

• Future EPS: The projected earnings at the end of the period.
• Current EPS: The most recent reported annual earnings.
• n: The number of years in the projection period.

Why Forecast Future EPS Growth?

Predicting future earnings allows investors to estimate the Forward P/E Ratio and the PEG Ratio (Price/Earnings to Growth). A company growing its EPS at 20% per year is generally considered more valuable than a company growing at 5%, assuming all other risk factors are equal. Analysts often use three primary methods for these projections:

1. Historical Trend Analysis: Projecting past growth into the future.
2. Fundamental Growth: Calculating the Retention Ratio multiplied by the Return on Equity (ROE).
3. Top-Down Analysis: Starting with GDP growth, then industry growth, then company market share.

Practical Example

Imagine a technology company currently earning $4.00 per share. Based on new product launches and market expansion, you estimate that in 3 years, the company will earn $6.50 per share.

Using the calculator:

• Current EPS: $4.00
• Future EPS: $6.50
• Years: 3
• Annualized Growth Rate: 17.57%

This suggests the company is expected to compound its earnings at approximately 17.6% annually over the next three years.

function calculateEPSGrowth() { var currentEps = parseFloat(document.getElementById('currentEPS').value); var futureEps = parseFloat(document.getElementById('futureEPS').value); var n = parseFloat(document.getElementById('years').value); var resultArea = document.getElementById('resultArea'); var growthResultText = document.getElementById('growthResultText'); var totalGrowthText = document.getElementById('totalGrowthText'); if (isNaN(currentEps) || isNaN(futureEps) || isNaN(n) || n <= 0) { alert("Please enter valid positive numbers for all fields."); return; } if (currentEps <= 0) { alert("Current EPS must be greater than zero for CAGR calculation."); return; } // Calculate CAGR: ((Future / Current)^(1/n) – 1) * 100 var ratio = futureEps / currentEps; var exponent = 1 / n; var cagr = (Math.pow(ratio, exponent) – 1) * 100; // Calculate Total Percentage Growth var totalGrowth = ((futureEps – currentEps) / currentEps) * 100; growthResultText.innerHTML = "Projected Annual Growth Rate (CAGR): " + cagr.toFixed(2) + "%"; totalGrowthText.innerHTML = "Total cumulative growth over " + n + " years: " + totalGrowth.toFixed(2) + "%"; resultArea.style.display = "block"; resultArea.scrollIntoView({ behavior: 'smooth', block: 'nearest' }); }