Earnings Per Share Growth Calculator

The earnings per share growth calculator is a fundamental tool in your investment strategy. By understanding and using the earnings per share growth and the EPS growth rate, you can spot great investment opportunities that can return 100% or more. In this article, we will explore what EPS growth is, how to calculate the EPS growth rate, and see a real example of what is a good EPS growth rate.

In a nutshell, earnings per share is the total profit of a company (also called net income) divided by the number of shares a company has. It represents a key value for investors since it can help you relate how much earnings correspond to you, accordingly, to the shares you have.

It should be clear already that the EPS can be grown by increasing the net income margin or by reducing the number of shares. In the earnings per share calculator, you can explore how the number of shares can modify the earnings per share for shareholders.

For a company, showing high EPS relative to its share price can attract new investors that can fund expansion projects and make the company earn even more money. We extensively explain the relation between price and EPS on the price earnings ratio calculator.

For any public company in the U.S., you can find the earnings per share in the income statement. For private companies or in different countries, the same document can be called the Profit and Loss statement (P & L). There you will also see how a company gets its earnings starting from its revenues.

Usually, the income statement shows data obtained over several years. Then, you can use such values (for example, 2020 EPS value and 2019 EPS value) and calculate its variation in our robust earnings per share growth calculator. Do not worry; we will explore how to calculate them in the following paragraphs.

EPS growth refers to the positive change between earnings per share values reported by the company. In other words, it refers to how much EPS has increased over a defined amount of time.

To clearly understand the meaning of EPS growth meaning, you have to picture a business like a machine in which you put capital (ideally, only once). In time, it will generate profits that can be sustained over time. From such profits, the business needs resources for paying off debts, expanding its operations, and paying dividends to the owners, among other activities.

The bigger the profits, the bigger the payment to owners. Thus, it is of utmost importance for this machine to produce more and more profits during the time it exists. That is why EPS growth is so significant.

All which corresponds to the owners (capital invested and retained earnings) is called equity. Consequently, a way to measure the return of the business compared to the investment of the owners is by using the return on equity calculator. Ideally, if EPS grows, ROE grows, but be careful; it does not always happen.

The EPS growth formula is:

where:

• $\footnotesize \rm {EPS_{final}}$ — Most recent earnings per share data between the two chosen periods; and

• $\footnotesize \rm {EPS_{initial}}$ — Older earnings per share data between the two chosen periods.

Of course, as long as our earnings per share growth calculator gives a positive EPS growth %; we can say the earnings per share are increasing.

The EPS growth rate is the speed at which the earnings per share are growing. It uses the same concept as CAGR calculator, and that is why it is also known as EPS CAGR.

Calculating EPS growth is critical for investors since it can determine if the company is undervalued or overvalued. One of the methods that includes the EPS growth rate is the PEG ratio.

A key point when analyzing the EPS growth rate is the time span. A company that can only sustain 20% EPS CAGR over three years and then stagnates is at an inferior level compared to a company that can sustain 15% EPS CAGR over five years. The latter has the opportunity to compound more times.

Using the EPS growth rate formula (see below), we find out that to grow EPS at 20% over three years equals increasing it 1.73 times; meanwhile, to grow the same EPS at a 15% compound annual rate over five years equals double it. You can verify it in our intelligent earnings-per-share growth calculator, too.

In this section, we will explore the math and a real example. The EPS growth rate formula is:

where:

• $\footnotesize n$ — Number of periods; and
• $\footnotesize \rm {\Delta EPS}$ — Difference between $\footnotesize \rm {EPS_{final}}$ and $\footnotesize \rm {EPS_{initial}}$. See the last section for their definition.

The number of periods refers to all the periods that have passed between the two dates. For instance, if we want to analyze the growth rate between 2017 and 2020, we will consider three periods: 2017 to 2018, 2018 to 2019, and 2019 to 2020. We will further cover the number of periods in the next section.

For a better explanation, we will take Apple as an example. Here are the diluted earnings per share results reported since 2011:

• $\footnotesize \rm {EPS_{2011} = 1.00 \ USD}$

• $\footnotesize \rm {EPS_{2012} = 1.59 \ USD}$

• $\footnotesize \rm {EPS_{2013} = 1.43 \ USD}$

• $\footnotesize \rm {EPS_{2014} = 1.62 \ USD}$

• $\footnotesize \rm {EPS_{2015} = 2.32 \ USD}$

• $\footnotesize \rm {EPS_{2016} =2.09 \ USD}$

• $\footnotesize \rm {EPS_{2017} = 2.32 \ USD}$

• $\footnotesize \rm {EPS_{2018} = 3.00 \ USD}$

• $\footnotesize \rm {EPS_{2019} = 2.99 \ USD}$

• $\footnotesize \rm {EPS_{2020} = 3.31 \ USD}$

Notice that we have covered 9 full periods of 1 year each. Then, by using the mentioned formula or the earnings per share growth calculator, we get the EPS growth rate:

$\footnotesize \rm {EPS \ growth \ rate = ((EPS_{2020} / EPS_{2011})^{1/9} - 1) \times 100 \% }$

$\footnotesize \rm {EPS \ growth \ rate = 14.2 \%}$

As mentioned before, a good EPS growth rate is over 15%, and it will usually be preceded by a higher revenue growth rate. But can you guess how much your initial investment could have grown since 2011? A thousand dollars average invested in Apple stock would have returned approximately 11,000 USD in 2021.

Note that between 2015 and 2016, there was an EPS shrinkage:

$\footnotesize \rm {EPS \ growth = (2.09 - 2.32) / 2.32) \times 100 \%}$

$\footnotesize \rm {EPS \ growth = -9.91 \%}$; however, this shrinkage was temporary and did not affect the positive EPS growth rate.

Single negative EPS or EPS shrinkage can happen due to business seasonality or economic cyclicality and should be analyzed considering macroeconomic factors such as supply inventory shortage or inflation.

When the EPS growth rate is low (under 2%) or the company has reported consecutive negative EPS, there is no sense in calculating the growth rate. As an option, we recommend you verify operating earnings growth with the operating cash flow calculator. That is because a positive and growing operating cash flow usually indicates a positive and solid EPS in the short term.

In conclusion, the EPS growth calculator is an insightful tool. Still, it could be way more powerful if it is combined with our vast set of equity investment calculators.