Earnings Growth Rate: Meaning, Formula, & Importance

Last updated April 4, 2023

What is the Earnings Growth Rate?

The earnings growth rate tells you the percentage rate at which earnings are growing between two quarters. This figure is used in some financial ratios that compare companies based on growth rates, like PEG Ratio.

Earnings Growth Rate Formula

earnings rate formula as written on a chalkboard

Earnings Growth Rate = (Q4 EPS - Q1 EPS) / (Earnings Growth Rate)

Find quarterly earnings rates using the company's latest quarterly report. That report will show you the last four quarterly earnings.

To find the market cap, you can multiply the current stock price by the number of shares outstanding.

Both of these numbers can be found on any site that provides current stock quotes.

Earnings Growth Rate Calculator

This earnings growth rate calculator will give you the earnings growth rate using Q4 and Q1 revenue. Note that the Q1 and Q4 fields can be used to calculate growth rate between any two periods.

Earnings Growth Calculator

Why is Earnings Growth Rate Important?

Earnings growth rate is important because it helps investors make decisions. It's an important piece of other helpful financial ratios, like the Price to Earnings Growth Ratio.

It helps investors:

  • compare the growth of one company to the growth of another.
  • compare one company's current earnings growth to past earnings growth.
  • compare a company's earnings growth to the average earnings growth of the companies in its sector.
  • calculate PEG ratio, which can help them decide whether or not to buy at the current price.

Most equity investment objectives include at least some growth, which makes earnings growth rates very important.

Related Articles

Daniel Larsen

Daniel created epicctrader.com to help new and experienced traders level up. He began trading in 2002, and has spent over a decade trading professionally, for prop firms and clients. When he's not at a computer, you can find him on the ocean, in a canyon, or in the mountains.