Profit growth
Earnings Growth
Profit growth is the percentage increase in net profit over a period. It is the denominator of the PEG ratio and the figure that decides whether a high PE is deserved.
Formula
One year growth
Profit Growth (%) = (Net Profit This Year − Net Profit Last Year) ÷ Net Profit Last Year × 100
Multi-year average (CAGR)
Profit CAGR (%) = ((Profit in Final Year ÷ Profit in Base Year) ^ (1 ÷ Years) − 1) × 100
Benchmark: Rising every year; use the 3 or 5 year average, and the latest year to choose between them
Reading the number
The notes' minimum checklist requires that the company be profitable every year and that profit be rising. The single-year figure can mislead in either direction: a one-off gain or loss swings it, and one negative year in an otherwise profitable company was explicitly noted rather than treated as disqualifying.
The three windows do the real work. Use the three or five year average as the growth rate in PEG. When they disagree, the latest year breaks the tie: if it matches the three year average, weight that; if it matches the five year average, weight that. Growth accelerating across the windows while PE is flat or falling is the setup worth the most attention.
Indian example
Related ratios
From the research
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