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EPS CAGR

Tutorial

Written by Polly
Updated over a week ago

There are two calculations being made in the pop-up. The first is a calculation of the rate of return over the timeframe being measured. It includes the growth component, the income component and any P/E ratio expansion or contraction over that time frame. In other words, rate of return is what the investor earns based on price changes and dividends, etc.

The second, and totally unrelated to the first calculation, is the growth rate of the company’s earnings over the timeframe being measured. This calculation has nothing to do with price or rate of return. Furthermore, this number is not an estimate, instead, the actual rate of return precisely calculated based on the factors being measured; the P/E ratio, the timeframe, etc. Yes, it is an estimate based on what the earnings would be, however, is a precise calculation assuming those earnings happen.

To summarize, we are measuring two things in that pop-up. Number 1, the growth of earnings (or whatever metric is being measured), over the timeframe being measured. It is a separate calculation that specifically measures the growth of earnings that occurred, and that number does not change no matter where you point your pointer on the other lines on the graph. The 2nd is sensitive to where you point your pointer because it generates the rate of return that would occur based on those factors.

NOTE: This is mostly useful on the historical chart so you can see the earnings growth in relation to stock price movement when using a performance calculation.

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