Earnings growth

Earnings growth measures how much a company's net income expanded or contracted compared to a prior period, usually the same quarter or year one year earlier. It's the bottom line counterpart to revenue growth, showing whether profit itself is growing rather than just sales.

The formula is:

Earnings growth differs from EPS growth because EPS growth also factors in changes in share count. A company can grow net income by 10% but see EPS grow faster if it's also buying back shares and shrinking the share count, or slower if it's issuing new shares that dilute existing holders. Earnings growth on its own shows how the company's total profit is trending, without adjusting for how that profit is divided among shares.

Earnings growth can also move differently from revenue growth, since profit margins can expand or contract for reasons that have nothing to do with sales volume. Cost control, pricing power, or a one-off gain or charge can all move net income without moving revenue by nearly as much. Because of that, earnings growth is usually read alongside revenue growth to see whether profit is growing because the business is becoming more efficient or simply because it's getting bigger.