2018-02-27 14:02:58 Profit & Loss English Discover why knowing your company's average earnings growth could mean the difference between landing potential investors and making unwise... https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2018/02/Woman-Charting-Business-Growth-Computer.jpg https://quickbooks.intuit.com/ca/resources/profit-loss/average-earnings-growth-explanation/ Small Business Term: What Is Average Earnings Growth?

What Is Average Earnings Growth?

1 min read

Are you looking for ways to attract more investors? Investors often use a company’s average earnings growth percentages to determine whether your company is a good investment. Your average earnings growth is your business’s percentage of earnings paid out to employees, minus any bonuses, over a specific period of time — such as a three- or five-year period. Ideally, to gather interest from as many investors as possible, they want to see an increase in your average earnings growth. However, an increase in your average earnings growth needs to accompany an increase in sales revenue for the best possibility that your company is a positive investment.

What Is Earnings Growth

When your earnings growth percentage increases, it means you’re paying out more money to your employees — either you’ve increased wages or you’ve hired more people. If this percentage increases without your annual sales percentage and productivity numbers increasing as well, your profits decrease. In the long run, you need to cut costs or raise your prices to even things out. So, if your earning growth percentage increases and your annual sales amount doesn’t increase too, it could be a red flag to potential investors.

Track Earnings Growth for Small Business Growth

Tracking your average earnings growth percentage also helps you make important decisions for your business. For example, if you track your average growth earnings on a monthly, quarterly, and annual basis and compare the percentages to your average sales amounts throughout the year, it’s easier to spot upcoming growth or loss trends. Knowing this information in advance could help you determine whether or not it’s feasible to hire a new employee or determine where you might consider cutting back on spending a bit.

When looking for potential investors, you should consider compiling a range of data including your average earnings growth, compound annual growth rate, and annual sales history. This way, potential investors can see what your company has accomplished and determine where it’s heading in the next few years. The goal is to get potential investors to see the big picture — that their investment helps your company succeed — so the more data, the better.

Keeping accurate records is vital for a successful business. Using an accounting system, such as QuickBooks Online, you can generate a Profit and Loss statement automatically. Learn how today.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Related Articles

What are Retained Earnings and How to Calculate Them

Retained earnings are a vital part of any business. Without it, many…

Read more

When and How to File a Record of Employment

When running a small business it is important that you are aware…

Read more

What is EBIT and How to Calculate It

EBIT is Earnings Before Interest and Taxes. It reports a firm’s earnings…

Read more