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In your answer about the PEG ratio, could you explain what the example EPS Growth = (50-40) / 40 X 100 = 25% is doing?

All we are doing here is calculating the rate of EPS growth as a percentage.

If last year's EPS was 40c and this year's EPS was 50c, then you should be able to see without the equation that EPS is up by 10c, which is up by one quarter, which is 25%.

However, it is not always that easy to see, so we have to calculate the EPS growth.

The first part of the equation is (50 - 40) = 10, which is how much EPS have gone up (what they are this year minus what they were last year).

However, the naked figure is not of any use. We must know what it is relatively. So, we take the increase divided by the starting value (10/40) which is one quarter or 0.25. As a percentage, it is 0.25 multiplied by 100 = 25%.

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