While this is one of the most crucial areas of the Stock Selection Guide, the techniques for estimating historical growth are not that difficult. The key is to identify consistent trends in the company's growth over the past ten years.
Before putting pencil to paper, however, you should look carefully at the graphed data to see if there are any years which appear to be abnormal. Perhaps EPS dropped off significantly in one year, only to rebound the next. In that case, you might consider that year to be an "outlier", an unusual, one-time occurence, and simply not consider it in your calculations. Circle the point in question to mark it as an outlier, and continue with your analysis. Of course, any inconsistency may be a cause for further research to determine if there is a significant change in the company's operations.

To identify the past trends, use a ruler to draw a trend line to approximate the average annual growth for both EPS and Revenues, a single straight line that best "matches" the points you have already graphed. In this company's case, you will draw your trend lines all the way from the farmost left vertical line, the 1986 year, all the way to the furthest right year, 1999. There are four basic methods of drawing trend lines:

#### The Inspection or Best Judgement Method

- By far the most common method of drawing a trend line, the "Best Judgement" method simply means that you examine the yearly results and draw a line that best represents the overall picture of those years. The following is an example of a trend line for Earnings Per Share drawn using the Best Judgement method.

In this case, EPS have been very consistent, so it is relatively easy to determine the trend.

#### The Peak Period Method

- This procedure is often used for more cyclical companies, those whose earnings or revenues increase to a "peak" and then recede. Find the two most recent of these peaks and draw a line that connects them.
#### The Mid Point Method

- This method produces a mathematical result that will be exactly the same for all who use it. It requires that you find the average of the first five data points, plot that point on the graph, find the average of the last five data points, then plot that point on the graph, and draw a straight line that connects those two points.
#### The Area Method

- To use this method, place your trend line so that the area between your trend line and the drawn lines connecting the data points is equal both above and below the trend line.