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3-Year EBITDA Growth Rate. EBITDA per Share

3-Year EBITDA Growth Rate. EBITDA per Share

DEFINITION:

EBITDA growth is a widely used business’ performance parameter that helps to determine the growth rate of a company. EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization. Read more about EBITDA and its calculation.

3-Year EBITDA Growth is calculated as the compounded annual growth rate (CAGR) of EBITDA over the previous 3 financial years (FY).

Please click "3-Year Revenue Growth Rate Calculation" examples to see how calculates revenue growth rate, compound annual revenue growth rate and revenue per share growth rate. It is possible to apply the same method to get the EBITDA growth, EBITDA per share growth rate.

FORMULAS for calculations:

EBITDA per Share = EBITDA / Shares Outstanding

EBITDA growth rate, (%) = (Current period EBITDA - Prior period EBITDA)/Prior period EBITDA * 100

Compound annual growth rate, CAGR = [((EBITDA per Share final / EBITDA per Share initial) ^ (1/n)) -1] * 100

WHERE: n – number of periods; and the ^ symbol is the exponent symbol that is used in math.


RESULT INTERPRETATION:

  • Growth in EBITDA indicates an improvement in the efficiency of a company.
  • Growth in EBITDA leads to an increase in the Earnings per share (EPS) of a company, and as a result, the market price of a stock upwards.
  • EBITDA growth rate varies by industry. Thus, ratios have to be compared within the same industry.
  • The higher the EBITDA growth rate, the better.
  • The higher number in comparison with its peers is a good result.
  • The historical data may not always be a fail-safe way for the forecast as economic situation constantly change.

EXAMPLE

Company EBITDA Data
EBITDA per Share EBITDA Growth Rate, % CAGR, %
FY2017 3,05
FY2018 3,26 6,89
FY2019 3,14 -3,68
FY2020 6,08 93,63 25,85

EBITDA per Share growth rate, EBITDA GR (%) calculation:

EBITDA GR (2020) = (6,08 – 3,14) / 3,14) * 100 = 93,63%

EBITDA GR (2019) = (3,14 – 3,26) / 3,26) * 100 = - 3,68%

EBITDA GR (2018) = (3,26 – 3,05) / 3,05) * 100 = 6,89%

Compound Annual EBITDA per Share Growth Rate, CAGR (%) calculation:

CAGR (3 years) = [((EBITDA per Share 2020 / EBITDA per Share 2017) ^ (1/3)) - 1] * 100 = [((6.08 / 3.05) ^ (1/3)) -1] * 100 = 25,85 %

The EBITDA CAGR is 25,85% over the three-year period. Note: CAGR can give the illusion that there is a steady growth rate, as it provides a "smoothed" annual yield. Nevertheless, as you can see, company had the negative EBITDA growth rate in one of the years. It is important to consider in investment or financial management decision-making process.

FIND MORE:
Fundamental Analysis Indicators

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