Definition:

The 5-year Operating Income per Share Growth Rate measures the annualized rate at which a company's operating income per share has grown over a five-year period. It provides insight into the company's ability to increase its operating income relative to its number of shares outstanding.

Formula:

((Operating Income per Share in Year 5 / Operating Income per Share in Year 0) ^ (1/5)) - 1

How to use the metric:

This metric is used by investors and analysts to assess a company's operational efficiency and profitability growth over time. A higher growth rate indicates that the company is effectively increasing its operating income on a per-share basis, which can be a positive signal for potential investors.

Limitations:

The metric does not account for changes in the number of shares outstanding due to stock splits, buybacks, or issuances. It also does not consider external factors such as economic conditions or industry trends that might impact operating income. Additionally, it may not reflect short-term operational challenges or successes.

Applies to:

This metric works best in industries where companies have relatively stable and predictable operating income, such as consumer goods, utilities, and healthcare. These industries often have consistent demand and less volatility in their operating income.

Doesn't apply to:

Industries with highly volatile or cyclical operating income, such as technology or commodities, may not find this metric as useful. In these sectors, operating income can fluctuate significantly due to rapid innovation cycles or commodity price changes, making long-term growth rates less indicative of future performance.

Summary:

The 5-year Operating Income per Share Growth Rate is a useful metric for evaluating a company's long-term operational growth and efficiency. While it provides valuable insights into profitability trends, it should be used in conjunction with other financial metrics and industry analyses to gain a comprehensive understanding of a company's financial health.