The Earnings Per Share Rating measures a company's earnings growth over the last five years. Then, the percentage change in the last two quarters' earnings vs. the same quarters a year earlier is combined and averaged with the five-year figure.
The result is then compared to all other companies in Investor's Business Daily's stock tables (not, as some people think, to other stocks on the same exchange or stocks in the same industry group) and rated on a scale of 1 to 99, with 99 being best.
If a company had an EPS Rating of 90, this means the company produced earnings results in the top 10 percent, meaning its earnings were superior to 90 percent of all publicly traded companies. As a general rule, companies with superior earnings records have EPS Ratings of 80 or higher.
The profit figures on which we base the rating are "normalized" earnings per share, which are a type of pro forma results. These don't always conform with Generally Accepted Accounting Principles (GAAP), but they better reflect a company's ongoing operations. Specifically, the after-tax amount of one-time gains and charges, extraordinary items, and other nonrecurring items are backed out of net income by our research staff in order to arrive at a "normalized" figure. Our studies have found that the normalized figure is the most appropriate in analyzing a stock's past earnings growth and its potential going forward.