Net Income Growth

 Revision as of 13:03, April 24, 2009 (edit)Pcushing - Sr. Director (Talk | contribs)← Previous diff Revision as of 15:14, May 15, 2009 (edit) (undo)Walim - Sr. Director (Talk | contribs) Next diff → (5 intermediate revisions not shown.) Line 1: Line 1: {{def}} {{def}} - '''Net income growth is the annualized rate of growth over the previous year's period.''' + '''Net income growth is the annualized rate of growth over the previous year's [[net income]]''' Net income growth is the percentage gain (or loss) in [[net income]] over time. It is a good indicator of the rate at which companies have grown [[Profit|profits]] . Stocks with higher net income growth rates are typically more desirable than those with lower net income growth rates. Net income growth is the percentage gain (or loss) in [[net income]] over time. It is a good indicator of the rate at which companies have grown [[Profit|profits]] . Stocks with higher net income growth rates are typically more desirable than those with lower net income growth rates. Line 10: Line 10: ==Examples== ==Examples== - * Company XYZ earned \$1 million in 2007. In 2008, they earned \$1.35 million. Company XYZ has 35% net income growth. + * Company XYZ earned \$1 million in 2007. In 2008, they earned \$1.35 million. Company XYZ has 35% net income growth. (.35 / 1) + + + ==Net Income Growth Calculation on Wikinvest== + Wikinvest calculates net income growth as the growth of [[trailing twelve months]] of net income. The treatment is different from Yahoo! Finance which calculates quarterly year-over-year growth. The following example will illustrate the difference: + + {| {{table}} + | align="center" style="background:#f0f0f0;"|'''''' + | align="center" style="background:#f0f0f0;"|'''2006''' + | align="center" style="background:#f0f0f0;"|'''2007''' + | align="center" style="background:#f0f0f0;"|'''2008''' + |- + | Q1||\$100m||\$104m||\$144m + |- + | Q2||\$120m||\$142m||\$120m + |- + | Q3||\$130m||\$140m + |- + | Q4||\$140m||\$170m + |- + | + |- + | + |} + + Q2 2008 is the most recent quarter. In this case, Yahoo! Finance would calculate net income growth as -15.5% [(120-142)/142]. + + Wikinvest, on the other hand would calculate the growth as 11.2%. This is because wikinvest calculates the growth based on the net income generated in the last twelve months. In this case, Q3 07, Q4 07, Q1 08 and Q2 08. Specially, it is calculated as: + + Net Income growth = ((120+144+170+140)-(142+104+140+130))/(142+104+140+130) = 11.2% + + Taking the growth based on trailing twelve months of net income mitigates undue fluctuations that affect a single quarter. + [[Category:Mature]] [[Category:Mature]]

Revision as of 15:14, May 15, 2009

Net income growth is the annualized rate of growth over the previous year's net income

Net income growth is the percentage gain (or loss) in net income over time. It is a good indicator of the rate at which companies have grown profits . Stocks with higher net income growth rates are typically more desirable than those with lower net income growth rates.

Investors are particularly enamored by companies with net income growth in the double digits, or greater than 10% growth, and equally important are those companies that have accelerating earnings growth. More mature firms will have lower, more constant levels of growth and typically compensate investors with greater dividends instead of a high growth rate.

When calculating net income growth for multi-year periods, net income growth is usually compounded.

Examples

• Company XYZ earned \$1 million in 2007. In 2008, they earned \$1.35 million. Company XYZ has 35% net income growth. (.35 / 1)

Net Income Growth Calculation on Wikinvest

Wikinvest calculates net income growth as the growth of trailing twelve months of net income. The treatment is different from Yahoo! Finance which calculates quarterly year-over-year growth. The following example will illustrate the difference:

 ' 2006 2007 2008 Q1 \$100m \$104m \$144m Q2 \$120m \$142m \$120m Q3 \$130m \$140m Q4 \$140m \$170m

Q2 2008 is the most recent quarter. In this case, Yahoo! Finance would calculate net income growth as -15.5% [(120-142)/142].

Wikinvest, on the other hand would calculate the growth as 11.2%. This is because wikinvest calculates the growth based on the net income generated in the last twelve months. In this case, Q3 07, Q4 07, Q1 08 and Q2 08. Specially, it is calculated as:

Net Income growth = ((120+144+170+140)-(142+104+140+130))/(142+104+140+130) = 11.2%

Taking the growth based on trailing twelve months of net income mitigates undue fluctuations that affect a single quarter.