Earnings growth is the annual compound annual growth rate (CAGR) of earnings from investments.

When the dividend payout ratio is the same, the dividend growth rate is equal to the earnings growth rate. Earnings growth rate is a key value that is needed when the Discounted cash flow model, or the Gordon's model is used for stock valuation.

The present value is given by:

where P = the present value, k = discount rate, D = current dividend and ${\displaystyle g_{i}}$ is the revenue growth rate for period i.

If the growth rate is constant for ${\displaystyle i=n+1}$ to ${\displaystyle \infty }$, then,

The last term corresponds to the terminal case. When the growth rate is always the same for perpetuity, Gordon's model results:

As Gordon's model suggests, the valuation is very sensitive to the value of g used.

Part of the earnings is paid out as dividends and part of it is retained to fund growth, as given by the payout ratio and the plowback ratio. Thus the growth rate is given by