Definition:

The 10-year EPS Growth Rate measures the annualized rate at which a company's earnings per share (EPS) have grown over the past ten years. It provides investors with insight into the company's historical earnings performance and growth trajectory.

Formula:

10-year EPS Growth Rate = [(EPS at end of period / EPS at start of period) ^ (1/10)] - 1

How to use the metric:

Investors use the 10-year EPS Growth Rate to assess a company's long-term profitability and growth potential. A higher growth rate suggests a company is expanding its earnings capability, which can be a positive indicator for future performance. It is often used in conjunction with other financial metrics to evaluate investment opportunities.

Limitations:

The 10-year EPS Growth Rate may not accurately reflect future performance, as it is based on historical data. It can be skewed by one-time events or accounting changes. Additionally, it may not be applicable to companies with volatile earnings or those in rapidly changing industries.

Applies to:

This metric works best in stable industries with mature companies, such as consumer goods, utilities, and healthcare, where earnings are more predictable and less volatile.

Doesn't apply to:

It may not apply well to industries with high volatility or rapid innovation, such as technology or biotech, where earnings can fluctuate significantly due to market dynamics or product cycles.

Summary:

The 10-year EPS Growth Rate is a useful metric for evaluating a company's historical earnings growth over a decade. While it provides valuable insights into a company's past performance, investors should be cautious of its limitations and consider it alongside other metrics and industry-specific factors.