Investment Formula Description
Growth rate is a percentage of improvement for a specific variable within a specific financial period.
This investment formula can use for various of investment formula such as earning per share ( EPS ), net profit , dividend yieldand more formula. If Growth rate is used for earning per share, it means that the investors can find out the percentage of growth for earning per share within a specific financial period. For financial period, it can be quarterly or annually. If it is used to calculate quarterly growth rate, sometime it is referred as Quarter over Quarter ( QoQ ) growth rate. If it is used to calculate yearly growth rate, it can be referred as annual growth rate or Year over Year ( YoY ) growth rate. Unlike compound annual growth rate ( CAGR ) that uses to measure growth for multiple-year period, growth rate is used to measure growth between two recent financial period.
Different industries will have different growth rate. Hence, growth rate is useful to compare companies within same industry. Besides, for cutting edge technology industries, it tends to have higher growth rate compared to a mature industry. For investors that like to have high capital gains, they should focus on high growth companies since high growth rate in earning per share and net profit will reflect in increment in stock price.
Growth Rate = ( Current Value - Previous Value ) / Previous Value X 100
Investment Formula Examples
Corporation A has $20,000 net profit for previous quarter and $ 30,000 net profit for current quarter. The quarter over quarter ( QoQ ) growth rate calculation is as following.
QoQ Growth Rate = ( Current net profit - Previous net profit ) / Previous net profit X 100 = ( 30,000 - 20,000 ) / 20,000 X100 = 50%
Corporation A has 50% growth on net profit on quarterly basic.
Corporation A has $1 earning per share ( EPS ) for last financial year and $1.2 earning per share for current financial year. The annual growth rate or year over year ( YoY ) growth rate calculation is as following.
Annual Growth Rate = ( Current EPS - Previous EPS) / Previous EPS X 100 = ( 1.2 - 1 ) / 1 X100 = 20%
Corporation A has 20% growth on earning per share on yearly basic.