Earnings growth rate.
In plain English
The earnings growth rate compares profit in one period to profit in an earlier period and expresses the change as a percentage. Most reporting compares a quarter to the same quarter a year earlier, which strips out seasonal swings that a quarter-to-quarter comparison would pick up. Growth can be measured on total net income or on earnings per share, and the two differ when share count changes. A company buying back shares can show per-share growth even with flat total profit. Multi-year growth is usually annualized so periods of different length can be compared.
01Why it matters
Growth rate is what most valuation multiples are quietly paying for, so a stock that looks expensive against profit today may be priced on profit several years out.
02The math, step by step
Net income was $40 million last year and $46 million this year. The change is $6 million. $6 million divided by $40 million is 0.15, so earnings grew 15 percent.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
Revenue is sales at the top of the income statement. Earnings are what survives after costs, interest, and taxes. A company can grow revenue while earnings shrink if costs rise faster, and it can grow earnings on flat revenue by cutting costs.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice