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Creating a Portfolio Like Warren Buffett: A High-Return Investment Strategy by Jeeva Ramaswamy

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CHAPTER 6

Stock Research Checklist—Earnings

Examine company earnings growth for the last 10 years. If the company is less than 10 years from its initial public offering (IPO) date, at least examine the earnings growth history from the IPO date.

What Is the Company’s Earnings Growth over the Previous 10 Years? Does It Grow Constantly?

Earnings Per Share (EPS) = Company net income ÷ Number of shares outstanding

(When you are using the number of outstanding shares, use the fully diluted shares instead of outstanding shares).

Here is the calculation to get the EPS growth rate

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Here is a sample calculation of EPS growth rate for Company X.

2006: $0.17
2007: $0.25
2008: $0.53
2009: $0.25

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In this example, the EPS from 2006 to 2008 looks great. But in 2009, the EPS is reduced. As an investor, you need to find the reason for those downward earnings. Does the company have a temporary problem or is ...

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