Start by considering sales growth. Over short periods of time, it is possible for stocks to perform very well despite sales that are growing slowly, or even falling. Typically, this occurs when earnings growth comes from cost-cutting programs, or when a company divests a poorly performing subsidiary. But such scenarios can last only so long. Sooner or later, costs become as lean as they can be, or a company will have sold or shuttered all of its weak operations. At that point, a sustained increase in sales will be needed if one is to expect a sustained increase in earnings and cash flow.

Earnings Per Share growth is, of course, the prime focus of any investor's stock analysis efforts. Most of the other things you look at are designed, in one way or another, to help you assess the company's ability to generate future earnings growth.

For sales and EPS, we present year-to-year growth rates for three different periods. By year-to-year, we mean to say that we are comparing a particular period of time to a comparable period a year earlier. In other words, if we are examining the second quarter of 1999, we would be comparing it to the second quarter of 1998. (A comparison between the second quarter of 1999 and the first quarter of 1999 would be referred to as a "consecutive-quarter" comparison.) Whenever you encounter any information about a company's growth, assume you are seeing a year-to-year comparison unless you are specifically told otherwise. This convention is followed in the financial community in order to prevent growth data from being distorted by seasonal issues. For example, retailers typically show very dynamic growth from the third quarter to the fourth quarter, but that's usually because business is ramping up from the slow summer-autumn season to the holiday period, when many retailers usually generate most of the year's sales. The only way to measure whether or not a retailer is really growing at that key period is to compare the most recent holiday period to the year-ago holiday season.

The year-to-year comparison for the most recent quarter (MRQ) represents the most up-to-date growth information available to the financial community and is always an important determinant of near-term stock price performance. Start your inquiry with an assumption that strong MRQ growth rates will be accompanied by strong stock price performance and vice versa. That won't always happen. But when you spot an exception, make sure you examine the News reports to find out why this is happening. Often, you'll find important information in the latest Earnings Flash announcement.

The Trailing-Twelve-Month (TTM) periods add context to the MRQ data because they help you determine the extent to which the MRQ data represents a sustainable trend. The five-year growth rates cover a period of time that is long enough to further mitigate periodic quarterly aberrations in growth.

The last line of this table shows five-year growth rates for capital spending. There's much variation from one business to another in terms of capital intensity and the rate at which physical assets need to be modernized. Comparisons against the sector and the S&P 500 should be used mainly to provide a sense of the sort of spending needs that are faced by the industry you are examining.

When examining company-to-industry capital spending comparisons, remember that it is normal for a business to spend at least some money for capital projects year in and year out. But at times, capital spending can mushroom to especially high levels as a major project ramps up, and then slide to a lesser pace as the newly-completed project allows the company to trim down to basic "maintenance" levels. If you see that a company's capital spending growth was significantly higher than that of its industry, that could suggest that the company's needs should moderate, relative to its peers, in the next few years. That would give the company more flexibility regarding use of its cash flow (dividends, share buybacks, acquisitions, etc.). If you see that growth in spending trailed the industry average, that might suggest pent-up capital needs (and increased spending) in the years ahead.

Finally, compare the five-year growth rates for capital spending and sales. This can be important since there's usually a relationship between the value of a company's assets and the amount of sales that those assets can generate. A rate of sales growth that exceeds the rate of capital spending growth might indicate that a company is finding new ways to generate more Revenues from existing plant. But it could also mean that capacity is getting tight and that capital spending increases are around the corner.