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Growth Measures

Long-Term Earnings Growth

Earnings are what’s left of a firm’s revenues after it pays all of its expenses, costs, and taxes. Companies whose earnings grow faster than those of their industry peers usually see better price performance for their stocks. Projected earnings growth is an estimate of a company’s expected long-term growth in earnings, derived from all polled analysts’ estimates. When reported for a mutual fund, it shows the weighted average of the projected growth in earnings for each stock in the fund’s portfolio. At Morningstar, this measure helps determine our growth score for each stock and the overall growth orientation of the fund.

Historical Earnings Growth

Historical earnings growth shows the rate of increase in a company’s earnings per share, based on up to four periodic time periods. When reported for a mutual fund, it shows the weighted average of the growth in earnings for each stock in the fund’s portfolio. At Morningstar, this measure helps determine our growth score for each stock and the overall growth orientation of the fund.

Sales growth shows the rate of increase in a company’s sales per share, based on up to four periodic time periods, and is considered the best gauge of how rapidly a company’s core business is growing. When reported for a mutual fund, it shows the weighted average of the sales-growth rates for each stock in the fund’s portfolio. At Morningstar, this measure helps determine our growth score for each stock and the overall growth orientation of the fund.

Cash Flow Growth

Cash flow tells you how much cash a business is actually generating its earnings before depreciation, amortization, and noncash charges. Sometimes called cash earnings, it’s considered a gauge of liquidity and solvency. Cash-flow growth shows the rate of increase in a company’s cash flow per share, based on up to four time periods. When reported for a mutual fund, it shows the weighted average of the growth in cash flow for each stock in the fund’s portfolio. At Morningstar, this measure helps determine our growth score for each stock and the overall growth orientation of the fund.

Book Value Growth

Book value is, in theory, what would be left over for shareholders if a company shut down its operations, paid off all its creditors, collected from all its debtors, and liquidated itself. In practice, however, the value of assets and liabilities can change substantially from when they are first recorded. Book value growth shows the rate of increase in a company’s book value per share, based on up to four periodic time periods. When reported for a mutual fund, it shows the weighted average of the growth rates in book value for each stock in the fund’s portfolio. At Morningstar, this measure helps determine our growth score for each stock and the overall growth orientation of the fund.