Sometimes using the 5 year running averages can put things is better perspective. It can show if there has been any growth over the past 5 year when a company has recent problems. The 5 year running averages for the past 5 years compare the average for the past 5 years to the average for past years of 6 to 10. The 5 year running averages for the past 10 years compare the average for the past 5 years to the average for the past years of 11 to 15.
For example, say I use 5 year running averages for EPS to 2015. The 5 year running average for the past 5 years looks at the 5 year average EPS in year 2015 to the 5 year average EPS in the year 2010. The 5 year running average for the past 10 years looks at the 5 year average EPS in year 2015 to the 5 year average EPS in the year 2005.
The 5 year running average calculation is simple. I am using Dorel Industries as an example. Here I use the EPS for the 5 years of 2011 to 2015 inclusive and dividend it by 5. So if the EPS for years 2011 to 2015 is $3.21, $3.39, $1.79, -$0.66, and $0.79. I get a sum of 8.52 and dividing this by 5 I get 1.70. If the 5 year average for 2010 is $3.15 then the IRR for the past 5 years is -11.59%. This is not quite as bad as the 5 year decline showing as -27.15%. See my spreadsheet on Dorel Industries Inc.
For Canam Group Inc. the IRR over the past 5 years for EPS is 244% per year. There is because 5 years ago the company earned less than $0.01 in EPS and in 2015 EPS was at $1.08. However, the 5 year running average for the past 5 year is -7.58% per year.
This is because the 5 year running average to 2010 is $0.65 and the current 5 year running average is $0.55. So for the 5 years to 2010 the company earned more than for the 5 years to 2015. This shows that 2015 was a very good year for the company, but that the last few years were not good years. See my spreadsheet on Canam Group Inc.
For Andrew Peller Ltd. when looking at 5 year running averages and current growth they point to a very different format. The 5 year growth is -5.38% per year because 5 years ago the company earned $1.49 and in 2015 the company earned $1.13.
However, if you look at 5 year running average, the growth is 8.01% per year. This is because for the 5 years to 2010 the EPS averaged $0.67 per year and for the 5 years ending in 2015, the EPS averaged $0.98 per year. For this stock EPS tends to be volatile, but they have done better over the past 5 years of 2011 to 2015 than for years 2006 to 2010. See my spreadsheet at Andrew Peller Ltd.
This sort of calculation can be useful when a company has just reported a bad year. It can also be useful say when EPS or CFPS varies are lot year from year. In some industries EPS and CFPS is more volatile than in other industries.
On my other blog I wrote yesterday about DirectCash Payments Inc. (TSX-DCI, OTC-DCTFF)... learn more. Tomorrow, I will write about Loblaw Companies Ltd. (TSX-L, OTC-LBLCF)... learn more on Friday, August 12, 2016 around 5 pm.
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