1. What is Earnings Growth Rate?

The Earnings Growth Rate measures the percentage increase in a company's earnings over a specific period compared to its previous earnings. It's a key metric for investors to assess a company's profitability growth potential.

2. How Does the Calculator Work?

The calculator uses the earnings growth rate formula:

Where:

• \( Earnings\_growth \) — The increase in earnings ($)
• \( Previous\_earnings \) — The earnings from the previous period ($)

Explanation: The formula calculates what percentage the earnings have grown compared to the previous period's earnings.

3. Importance of Earnings Growth Rate

Details: Earnings growth rate is crucial for investors as it indicates how quickly a company's profits are increasing, which can signal future stock price appreciation and dividend growth potential.

4. Using the Calculator

Tips: Enter both the earnings growth amount and the previous earnings amount in dollars. Both values must be positive numbers, and previous earnings cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What's considered a good earnings growth rate?
A: Generally, rates above 10-15% are considered good, but this varies by industry. Compare to industry peers for context.

Q2: Can the growth rate be negative?
A: Yes, if earnings decreased from the previous period, the growth rate will be negative, indicating declining profits.

Q3: Should I use quarterly or annual earnings?
A: Both can be useful. Annual growth rates show long-term trends while quarterly rates reveal short-term performance.

Q4: How does this differ from revenue growth rate?
A: Earnings growth considers profits after expenses, while revenue growth only looks at top-line sales before costs.

Q5: Why is previous earnings in the denominator?
A: This shows growth relative to the starting point, giving context to the absolute dollar increase.