EPS Growth Rate Calculator
Calculate the percentage change in a company's Earnings Per Share (EPS) from one period to another. This indicates how quickly a company's profits are growing on a per-share basis.
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Understanding EPS Growth Rate
What is EPS Growth?
Earnings Per Share (EPS) growth is a key financial metric that measures the percentage increase or decrease in a company's EPS over a specific period. EPS is a company's net profit divided by the number of outstanding shares. Tracking its growth shows how effectively a company is increasing its earnings on a per-share basis, which is crucial for investors.
EPS Growth Rate Formula
The most common formula for calculating EPS growth rate for two periods is:
EPS Growth Rate (%) = ((Current EPS - Previous EPS) / Previous EPS) * 100
This formula works well when the "Previous EPS" value is positive. Special considerations are needed when the Previous EPS is zero or negative, as dividing by zero or a negative number can lead to misleading or undefined results.
Handling Zero or Negative Previous EPS
- Previous EPS = 0:
- If Current EPS > 0: Represents "Infinite Growth" as any positive EPS is an infinite percentage increase from zero.
- If Current EPS < 0: Represents a "Decrease from Zero" to a negative value. A percentage growth rate is not typically stated.
- If Current EPS = 0: Growth rate is "Undefined" (no change from zero).
- Previous EPS < 0:
- The standard percentage formula can produce counter-intuitive results when the base is negative. For example, going from -1.00 to -0.50 might be seen as an "improvement," but the formula gives ((-0.50 - -1.00) / -1.00) * 100 = (0.50 / -1.00) * 100 = -50%. Conversely, -1.00 to -2.00 gives ((-2.00 - -1.00) / -1.00) * 100 = (-1.00 / -1.00) * 100 = 100%, suggesting growth when earnings became *more* negative.
- In financial analysis, when the previous EPS is negative, analysts often focus on the *absolute change* in EPS or state that a meaningful percentage growth rate cannot be calculated from a negative base. This calculator will show the absolute change in this case.
EPS Growth Examples
See how the calculator handles different scenarios:
Example 1: Standard Positive Growth
Scenario: A company's EPS increased from $1.00 to $1.20.
Previous EPS: 1.00
Current EPS: 1.20
Calculation: Growth = ((1.20 - 1.00) / 1.00) * 100 = (0.20 / 1.00) * 100 = 20%
Result: Growth Rate: 20.00%
Example 2: Strong Positive Growth
Scenario: EPS grew significantly from $2.50 to $4.00.
Previous EPS: 2.50
Current EPS: 4.00
Calculation: Growth = ((4.00 - 2.50) / 2.50) * 100 = (1.50 / 2.50) * 100 = 60%
Result: Growth Rate: 60.00%
Example 3: Small Positive Growth
Scenario: A small increase from $5.00 to $5.10.
Previous EPS: 5.00
Current EPS: 5.10
Calculation: Growth = ((5.10 - 5.00) / 5.00) * 100 = (0.10 / 5.00) * 100 = 2%
Result: Growth Rate: 2.00%
Example 4: Zero Growth
Scenario: EPS remained unchanged at $3.00.
Previous EPS: 3.00
Current EPS: 3.00
Calculation: Growth = ((3.00 - 3.00) / 3.00) * 100 = (0 / 3.00) * 100 = 0%
Result: Growth Rate: 0.00%
Example 5: Negative Growth (Decrease)
Scenario: EPS decreased from $3.00 to $2.00.
Previous EPS: 3.00
Current EPS: 2.00
Calculation: Growth = ((2.00 - 3.00) / 3.00) * 100 = (-1.00 / 3.00) * 100 ≈ -33.33%
Result: Growth Rate: -33.33%
Example 6: Growth from Positive to Negative
Scenario: EPS went from a positive $2.00 to a loss of -$0.50.
Previous EPS: 2.00
Current EPS: -0.50
Calculation: Change = -0.50 - 2.00 = -2.50. Growth = ((-0.50 - 2.00) / 2.00) * 100 = (-2.50 / 2.00) * 100 = -125%
Result: Growth Rate: -125.00%
Example 7: Growth from Zero to Positive
Scenario: A company became profitable, going from $0.00 EPS to $1.50 EPS.
Previous EPS: 0.00
Current EPS: 1.50
Calculation: Division by zero is undefined. Any positive value from zero is considered infinite growth.
Result: Growth Rate: Infinite Growth (from 0 to positive)
Example 8: Growth from Zero to Negative
Scenario: A company incurred a loss, going from $0.00 EPS to -$1.00 EPS.
Previous EPS: 0.00
Current EPS: -1.00
Calculation: Division by zero is undefined. Going from zero to negative represents a decrease.
Result: Growth Rate: Decrease from zero (from 0 to negative)
Example 9: Growth from Zero to Zero
Scenario: EPS remained at $0.00 for both periods.
Previous EPS: 0.00
Current EPS: 0.00
Calculation: Division by zero is undefined. No change occurred from zero.
Result: Growth Rate: Undefined (0 to 0)
Example 10: Growth from Negative to Positive
Scenario: A company recovered from a loss, going from -$1.00 EPS to $0.75 EPS.
Previous EPS: -1.00
Current EPS: 0.75
Calculation: Change = 0.75 - (-1.00) = 1.75. Percentage growth from a negative base is typically not used or can be misleading.
Result: Change: 1.75. Growth % is typically not calculated from a negative base.
Frequently Asked Questions about EPS Growth
1. What is EPS?
EPS stands for Earnings Per Share. It is calculated as a company's net income minus preferred dividends, divided by the average number of outstanding common shares. It's a key indicator of a company's profitability on a per-share basis.
2. Why is EPS growth important?
EPS growth is a crucial metric for investors as it indicates a company's ability to increase its profits over time. Consistent, strong EPS growth is often seen as a sign of a healthy and growing business, potentially leading to a higher stock price.
3. How is the EPS growth rate calculated?
The standard formula is ((Current EPS - Previous EPS) / Previous EPS) * 100. This calculates the percentage change from the earlier period's EPS to the later period's EPS.
4. What does a positive EPS growth rate mean?
A positive EPS growth rate means the company's Earnings Per Share increased from the previous period to the current period, indicating improved profitability per share.
5. What does a negative EPS growth rate mean?
A negative EPS growth rate (or decrease) means the company's Earnings Per Share decreased from the previous period. This could be due to lower net income, an increase in outstanding shares, or a combination of factors.
6. How does the calculator handle cases where Previous EPS is zero?
If Previous EPS is zero and Current EPS is positive, it shows "Infinite Growth". If Previous EPS is zero and Current EPS is negative, it shows "Decrease from zero". If both are zero, it shows "Undefined". The standard percentage formula is not used in these cases.
7. Why is the growth percentage sometimes not calculated when Previous EPS is negative?
When the starting value (Previous EPS) is negative, the standard percentage change formula can give results that are counter-intuitive or misleading in a financial context (e.g., a larger loss showing as positive growth). In these cases, focusing on the absolute change in EPS is often more informative, and this calculator displays the change instead of a percentage.
8. What is considered a "good" EPS growth rate?
There's no single "good" rate; it varies significantly by industry, company size, maturity, and economic conditions. High-growth tech companies might aim for 20%+ annually, while mature, stable companies might have single-digit growth. Consistency is often more valued than a single high number.
9. Can EPS growth be calculated over multi-year periods?
Yes, EPS growth can be calculated between any two periods (quarters, years). For multi-year analysis, the Compound Annual Growth Rate (CAGR) is often used, but this calculator focuses on simple period-over-period growth.
10. Does share buybacks or dilution affect EPS growth?
Yes. Share buybacks (reducing outstanding shares) can increase EPS, boosting growth, even if net income is flat. Issuing new shares (dilution) increases outstanding shares, which can decrease EPS or slow growth, even if net income is rising.
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