Topic: Equity Analysis

Sustainable Growth Rate

When referencing a company’s sustainable growth rate, an analyst is discussing the growth in earnings and dividends that can be maintained given a company’s ROE and its existing capital structure. gsustainable = b × ROE b = earnings retention rate =...

H-Model for Valuing Growth

The H-Model is a modification of the Two Stage DDM. Unlike other two-stage models where the growth rate is assumed to be a constant, the H-Model assumes that the growth starts at a higher rate, and then gradually declines till it becomes normal stable growth rate....

Gordon Growth Model (GGM)

The GGM is a variation on the standard DDM that allows the analyst to assume that dividends will grow in perpetuity at a constant rate. V0 = Div1 /(rce – gdiv) Div1 = D0 * (1 + gdiv) = future period dividend payment rce = by now you should know this! In an exam...

Dividend Discount Model (DDM)

If James Brown is the “Godfather of Soul”, then the dividend discount model could be considered the “Godfather of Equity Valuation”. Many of the approaches used today can trace their roots to DDM. The basic thesis of the DDM is that the value of a common stock to an...

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