How To Calculate Growth Rates



 How To Calculate Growth Rates

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Are you a growth investor or a value investor? It doesn’t matter, and I’ll explain why in this video.


Can growth companies also be value companies?


Text slide: Growth vs. Value


A lot of investors either consider themselves growth investors or value investors. But in fact we can find growth stocks that have great value potential.


Let me explain…


Text Slide: Being a Value Investor


When you are a value investor there are no limits on what you can invest in.


Text slide to the right listing the following:


Large cap, small cap, biotech, oil and gas, new company or old company, it doesn’t matter.


The whole point of being a value investor is to pay less for something than what it is worth. Or pay less than the fair value.


But part of understanding the fair value of a company is first understanding its potential growth rate.


Text slide: Know Your Growth Rate


There are three common ways to get the growth rate for your company.


Text slide: First Method Earnings Per Share


The first, is calculating the growth rate of earnings per share.


To do this, you simply take the current EPS and subtract the prior year EPS to get your numerator. Then you divide that number by the prior year EPS. The resulting number is your growth rate for the prior year.


Keynote slide doing the math or B-roll video of me writing on Notebook.


Now, this will just give you the prior year’s growth rate.


Screenflow of excel while talking: You should also calculate the 10 year average, the 5 year average and the 3 year average to get additional historic numbers. These calculations can be done easily in a software program like Microsoft Excel.

Text Slide: Put it all together


Once you’ve calculated your EPS growth rate for all the historic averages, you need to determine a trend or a constant.


If the averages are all in the same ballpark then we can use that number for our average growth rate. If the averages are trending up or down you’ll want to make a determination of how this might affect the future growth of your company.


Text slide: 2nd Method Book Value Per Share


The second method is to use the book value per share growth rate.


book value per share is essentially what the price of a share of stock is worth by taking the assets minus the liabilities and dividing it by the shares outstanding.


B-roll: video of me writing equation on a notebook or Keynote Video Slide


You’ll do the same exact steps you did for earnings per share and calculate the 4 historic growth rates for book value per share.


Again, you’ll want to analyze the data for any constants or trends.


Text slide: 3rd Method


The third and easiest method is to just ask the analysts.


Text Overlay: Ask the Analysts


You won’t actually be talking to a wall street analyst, because financial sites like msn money do all the work for you.


Screenflow of how to ask the analysts on MSN money


On MSN money just type in the ticker symbol of the stock you want to know about. Click on earnings, then scroll down to look at the growth rate the analysts have given your company.

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