Calculating the Growth Rate

The future EPS growth rate for a single year is quite simple to calculate. Let's say Addict Your Toddlers Toys has just reported EPS of $0.60 this year, and analysts estimate that it will earn $0.90 EPS for the upcoming year. The one-year growth rate, a straight percentage gain calculation, is 50%.

How did we calculate that? By using a simple formula, we can figure out the single year future EPS growth rate:

(Earnings Est. for upcoming year -Current Earnings)  x 100
                     Current Earnings

This is really easy math -- really! -- and we'll walk you through each step. All you have to do is plug in the numbers and subtract, divide, and multiply. A piece of cake!

So let's figure out the one-year growth rate in earnings per share. First we need our earnings numbers. Remember, the earnings estimate for the upcoming year is $0.90 per share and current earnings are $0.60 per share.

Plugging those numbers into the above formula, we get a one-year growth rate of 50%:

($0.90 - $0.60)  x 100  =  50%
      $0.60

Let's go through this formula step-by-step. First take the earnings estimate for the upcoming year ($0.90) and subtract what Addict Your Toddlers Toys earned over the past year ($0.60). This gives us the expected increase in EPS ($0.30). We want to compare the expected increase in EPS to current earnings. To do this, we divide the difference in earnings ($0.30) by the current year's earnings ($0.60). The result is 0.5. Multiply 0.5 by 100 to express the growth rate as a percentage. Voila! We get 50%.

    Estimated Earnings    $0.90  
   -   Current Earnings   $0.60 
    Increase in Earnings  $0.30    

   Divided by Current Earnings: $0.30/$0.60 = 0.5

   Convert to Percentage: 0.5 times 100 = 50%

So what does this really mean? In this case, the company is currently earning $0.60 per share and we expect that to grow by 50% over the coming year to $0.90 per share.