Lessons
- Equity Analysis Part 2 - Introduction
- Porter’s Five Competitive Forces
- Industry Analysis
- Supply and Demand Analysis
- Financial Projections in Emerging Markets
- Cost of Capital in Emerging Markets
- Cash Flows: Dividends vs. Free Cash Flows vs. Residual Income
- Dividend Discount Model (DDM)
- Gordon Growth Model (GGM)
- Present Value of Growth Opportunities (PVGO)
- GGM, Leading P/E Ratio, and Trailing P/E Ratio
- Multi-Stage Dividend Discount Models
- H-Model for Valuing Growth
- Sustainable Growth Rate
GGM, Leading P/E Ratio, and Trailing P/E Ratio
- The principles of GGM can be applied to derive Leading and Trailing price to earnings ratios.
- Leading P/E Model: Based on future earnings.
P0/E1 = (Div1/Earning1)/(rce - g) = k/(rce - g)
Where k is the dividend payout ratio and g assumes that earnings growth and dividend growth are equal rates.
- Trailing P/E Model: Slight variation based on current dividend and current earnings.
P0/E0 = (Div0 × (1+g) / Earning0)/(rce - g) = (k×(1+g))/ (rce - g)
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