I was wondering, what is a better way, to calculate earning growth rate, to have a quick glance on company earning quality?
In ycharts, according to http://ift.tt/2kYBNy5 , the mentioned way is
Compounded EPS Growth = (EPS this period/EPS t periods ago)^(1/t) - 1
However, it only consider EPS during starting period and ending period. It doesn't take consideration into EPS in between the period.
Let's look at both company A and company B.
Company A ========= Year EPS "EPS Growth Rate" 2017 6.00 (6.0/4.9 - 1) = 0.22 2016 4.90 (4.9/3.5 - 1) = 0.40 2015 3.50 (3.5/2.2 - 1) = 0.59 2014 2.20 (2.2/1.0 - 1) = 1.20 2013 1.00 Compounded EPS growth rate = (EPS in year 2017 / EPS in year 2013) ^ (1/4) = (6.00 / 1.00) ^ (1/4) = 1.56 = 156% I try to take account into EPS in between period too, by using the following calculation. Average EPS growth rate = Sum of "EPS Growth Rate" / 4 = (0.22 + 0.40 + 0.59 + 1.20) / 4 = 0.60 = 60%
Company B ========= Year EPS "EPS Growth Rate" 2017 6.00 (6.0/0.3 - 1) = 19.0 2016 0.30 (0.3/0.4 - 1) = -0.25 2015 0.40 (0.4/0.5 - 1) = -0.2 2014 0.50 (0.5/1.0 - 1) = -0.5 2013 1.00 Compounded EPS growth rate = (EPS in year 2017 / EPS in year 2013) ^ (1/4) = (6.00 / 1.00) ^ (1/4) = 1.56 = 156% Average EPS growth rate = Sum of "EPS Growth Rate" / 4 = (19.0 - 0.25 - 0.2 - 0.5) / 4 = 4.5 = 450%
We can observe the following.
-
Company B has more "bumpy" earning than company A.
Compounded EPS growth rateunable to reflect such, as it only take consideration into EPS during starting period and ending period. -
Although company B has higher
Average EPS growth rate, it doesn't indicate that it has higher earning quality. The higher value, is caused by a sudden spike jump from 2016 EPS to 2017 EPS. Before 2017, company B EPS is in decreasing trend.
I was wondering, given data of earning history, which is a better way to calculate earning growth rate, to better reflect company earning quality?
Submitted December 11, 2017 at 07:14AM by yccheok http://ift.tt/2jxphFz
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