How to Measure Long-Term Company Growth

How to Measure Long-Term Company Growth thumbnail
You can measure a company's previous growth, but determining future growth can be unpredictable.

To measure long-term growth, you must analyze the annual earnings of a company over seven to 10 years. Long-term growth is an important indicator for the price performance of company stocks, and it can provide valuable information about the health of the company to investors and owners. The easiest way to measure long-term growth is by creating a linear regression model in Microsoft Excel.

Instructions

    • 1

      Calculate the company’s yearly earnings for each of the past 10 years. Earnings are the revenues a company has after all expenses and taxes are paid.

    • 2

      Open Microsoft Excel and ensure that you have the Data Analysis package. Navigate to "Data," "Analysis," then "Data Analysis."

    • 3

      If your version of Excel does not have this navigation path, add the Analysis ToolPak. To add it, select the Windows icon, "Excel Options," "Add-ins," "Manage Excel Add-ins," then "Analysis Toolpak." This will allow you to perform a linear regression.

    • 4

      Create two columns and label them "X" and "Y." Under X, add 10 rows, numbered 1 through 10, to represent each year. Under the Y column, enter the respective company earnings for each year.

    • 5

      Run your linear regression analysis. Click "Data," "Analysis," "Data Analysis," then "Regression." Select the box “input y range” and highlight the company earnings. Select the box ”input x range” and highlight the years 1 through 10.

    • 6

      Select the circle titled “output range” and check the respective “output range” box. In your spreadsheet, select the columns where you would like to place the regression information. Click “OK” and Excel will run the linear regression.

    • 7

      Analyze the regression output to determine the company’s growth. Excel will output two rows labeled “Intercept” and “X Variable 1” and two columns labeled “Coefficients” and “Standard Error.” Add the X Variable 1 coefficients and standard area to find the slope of the graph; this figure represents the rate of the company’s long-term growth over the last 10 years.

    • 8

      Use the slope data to measure past growth and future growth. If the slope is negative, it means that the company’s earnings are declining; if it is positive, the company’s earnings are rising. Multiply the slope by 10 to find the average 10-year growth of the company.

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References

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