Hong Life CalculatorsUnderstanding the EPS growth calculator — concept and principle
This calculator measures how fast a company's earnings per share (EPS) have grown: the change, the total growth, the compound annual growth rate (CAGR), a projection at that rate and the doubling time. Use it to compare companies, check growth assumptions in valuation and read earnings reports.
How it is calculated
- Change in EPS = latest − starting.
- Total growth = (latest ÷ starting − 1) × 100.
- CAGR = (latest ÷ starting)^(1/years) − 1.
- Projection = latest EPS × (1 + CAGR)^(years ahead).
- Doubling time = ln 2 ÷ ln(1 + CAGR).
Growth rates are not meaningful if the starting EPS is zero or negative.
The principle
CAGR is the steady yearly rate that would turn the starting EPS into the latest one. It smooths out ups and downs between the two points, which makes companies and periods comparable. Because growth compounds, total growth over several years is more than the yearly rate times the number of years. Projecting at the past CAGR is a simple extrapolation, not a forecast.
Worked example
Default inputs: starting EPS 4.20, latest 6.15, over 3 years, project 3 years ahead.
- Change = 6.15 − 4.20 = $1.95; total growth = 6.15 ÷ 4.20 − 1 ≈ 46.4%.
- CAGR = (6.15 ÷ 4.20)^(1/3) − 1 ≈ 13.56%.
- Projection = 6.15 × 1.1356³ ≈ $9.01.
- Doubling time = ln 2 ÷ ln 1.1356 ≈ 5.5 years.
| Starting EPS | Annual EPS growth (CAGR) |
|---|---|
| 1.05 | 80.26% |
| 2.1 | 43.07% |
| 3.15 | 24.98% |
| 4.2 | 13.56% |
| 5.25 | 5.42% |
| 6.3 | -0.8% |
| 8.4 | -9.87% |
How to read the result
A double-digit CAGR is strong, but check where it came from: revenue growth and margins are more durable than share buybacks or one-off gains. Compare with peers and with the price-earnings ratio; high growth often comes with a high P/E. Treat projections cautiously because growth usually slows over time.
Common mistakes
- Using basic EPS one year and diluted EPS another.
- Including one-off items that distort a single year.
- Calculating growth from a negative or near-zero starting EPS.
- Dividing total growth by years instead of using CAGR.
Frequently asked questions
What is a good EPS growth rate?
It depends on the industry and company maturity; compare with peers and history.
Why use CAGR instead of the average yearly change?
CAGR accounts for compounding and is not distorted by volatile years in between.
Can buybacks raise EPS growth?
Yes. Fewer shares raise EPS even if total earnings do not grow.
Sources: Compound annual growth rate (CAGR) and doubling-time formulas (standard; e.g. OpenStax, Principles of Finance (2022), Ch. 7)