What is EPS Growth?

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EPS growth refers to the growth rate of earnings per share (EPS) of a company over a period of time. EPS refers to the net income available to common shareholders per share and is an important indicator of a company's profitability. The EPS growth rate can reflect the improvement of a company's profitability, and a higher EPS growth rate is usually considered as a good performance of a company's profitability.

Definition

The Earnings Per Share Growth Rate (EPS Growth Rate) refers to the rate at which a company's earnings per share (EPS) increases over a period of time. EPS represents the net income available to common shareholders per share and is a crucial indicator of a company's profitability. A higher EPS growth rate is typically seen as a sign of strong company performance in terms of profitability.

Origin

The concept of the EPS growth rate developed alongside modern financial analysis. In the mid-20th century, as investors became more focused on company profitability, EPS emerged as a key metric. The EPS growth rate further aids investors in assessing the dynamic changes in a company's profitability.

Categories and Features

The EPS growth rate can be categorized into historical growth rate and projected growth rate. The historical growth rate is calculated based on past financial data, reflecting the company's past earnings growth. The projected growth rate is based on analysts' forecasts and market expectations, indicating potential future earnings growth. The historical growth rate provides an objective assessment of past performance, while the projected growth rate helps investors make future decisions.

Case Studies

For example, Apple's EPS significantly increased from 2010 to 2020, reflecting its successful expansion and innovation in the smartphone market. Another example is Amazon, whose EPS grew rapidly from 2015 to 2020, primarily due to the expansion of its e-commerce and cloud computing businesses. These cases illustrate how the EPS growth rate reflects a company's competitiveness and profitability in the market.

Common Issues

Common issues investors face when using the EPS growth rate include over-reliance on historical data while ignoring market changes, and excessive optimism about projected growth rates. Investors should combine this metric with other financial indicators and market analyses to comprehensively assess a company's profitability.

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A liquidity trap is an adverse economic situation that can occur when consumers and investors hoard cash rather than spending or investing it even when interest rates are low, stymying efforts by economic policymakers to stimulate economic growth.The term was first used by economist John Maynard Keynes, who defined a liquidity trap as a condition that can occur when interest rates fall so low that most people prefer to let cash sit rather than put money into bonds and other debt instruments. The effect, Keynes said, is to leave monetary policymakers powerless to stimulate growth by increasing the money supply or lowering the interest rate further.A liquidity trap may develop when consumers and investors keep their cash in checking and savings accounts because they believe interest rates will soon rise. That would make bond prices fall, and make them a less attractive option.Since Keynes' day, the term has been used more broadly to describe a condition of slow economic growth caused by widespread cash hoarding due to concern about a negative event that may be coming.

Liquidity Trap

A liquidity trap is an adverse economic situation that can occur when consumers and investors hoard cash rather than spending or investing it even when interest rates are low, stymying efforts by economic policymakers to stimulate economic growth.The term was first used by economist John Maynard Keynes, who defined a liquidity trap as a condition that can occur when interest rates fall so low that most people prefer to let cash sit rather than put money into bonds and other debt instruments. The effect, Keynes said, is to leave monetary policymakers powerless to stimulate growth by increasing the money supply or lowering the interest rate further.A liquidity trap may develop when consumers and investors keep their cash in checking and savings accounts because they believe interest rates will soon rise. That would make bond prices fall, and make them a less attractive option.Since Keynes' day, the term has been used more broadly to describe a condition of slow economic growth caused by widespread cash hoarding due to concern about a negative event that may be coming.

Liquidity Crisis

A liquidity crisis is a financial situation characterized by a lack of cash or easily-convertible-to-cash assets on hand across many businesses or financial institutions simultaneously.In a liquidity crisis, liquidity problems at individual institutions lead to an acute increase in demand and decrease in supply of liquidity, and the resulting lack of available liquidity can lead to widespread defaults and even bankruptcies.

Liquidity Crisis

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Liquidity Event

A liquidity event is an acquisition, merger, initial public offering (IPO), or other action that allows founders and early investors in a company to cash out some or all of their ownership shares.A liquidity event is considered an exit strategy for an illiquid investment or equity with little or no market to trade on. Founders of a firm push toward a liquidity event, and investors like venture capital (VC) firms, angel investors, or private equity firms expect one within a reasonable amount of time after initially investing capital.

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Liquid Alternatives

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Zero-Coupon Convertible

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Zero-Coupon Convertible

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Zero-Investment Portfolio

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Zero-Investment Portfolio

A zero-investment portfolio is a collection of investments that has a net value of zero when the portfolio is assembled, and therefore requires an investor to take no equity stake in the portfolio. For instance, an investor may short sell $1,000 worth of stocks in one set of companies, and use the proceeds to purchase $1,000 in stock in another set of companies.