Definition:

1-year Net Income Growth Rate measures the percentage change in a company's net income over a one-year period. It indicates how much the company's profitability has increased or decreased compared to the previous year.

Formula:

(Net Income in Current Year - Net Income in Previous Year) / Net Income in Previous Year * 100

How to use the metric:

This metric is used by investors and analysts to assess a company's profitability trend over the past year. A positive growth rate suggests improving profitability, while a negative rate may indicate declining profits. It helps in comparing the financial performance of companies within the same industry.

Limitations:

The metric does not account for external factors such as economic conditions or industry-specific challenges that might affect net income. It also doesn't provide insights into the reasons behind the growth or decline, such as cost-cutting measures or revenue growth. Additionally, it may not be meaningful for companies with volatile earnings or those in cyclical industries.

Applies to:

This metric works best in stable industries where companies have relatively predictable earnings, such as consumer staples, utilities, and healthcare. It is useful for mature companies with consistent financial performance.

Doesn't apply to:

It may not be as applicable to industries with high volatility or those experiencing rapid growth, such as technology or startups, where earnings can fluctuate significantly. In such cases, other metrics like revenue growth or EBITDA might provide better insights.

Summary:

The 1-year Net Income Growth Rate is a useful metric for evaluating a company's profitability trend over a year. While it provides a quick snapshot of financial performance, it should be used in conjunction with other metrics and qualitative factors to gain a comprehensive understanding of a company's financial health.