The importance of the growth rate of earnings per share can be gauged from the fact that the investors spend a lot of time in making the estimates. Forming a proper estimate of the growth rate of earnings per share is important to the success of the investments in the shares.
Equational Representation of Growth Rate of Earnings Per Share
The growth rate of earnings per share can be represented through the following numeric presentation:
Earnings per share growth rate = Earnings per share at the close of the period – Earnings per share at the starting of the period / Earnings per share at the start of the period
Uses of Growth Rate of Earnings Per Share
The rate of growth of the earnings per share is supposed to be useful in several ways.
Some of those may be enumerated as below:
The earnings per share growth is an integral part of the financial statement ratio analysis spreadsheets.
The earnings per share growth rate can be used for the purpose of pointing out the rate at which the investments have grown.
The rate of growth of the earnings per share can also be used in order to find out the exact nature of the growth. With the help of this rate it can be determined if the rate is increasing, stable, decreasing or inconsistent.
The multiplier that is used in order to determine the worth, in the market, of a particular business enterprise can be determined with the assistance of the growth rate of earnings per share. It has been observed that the higher the ratio is the higher is the multiplier.