share valuation models

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CA Shruti kuchhal (Querist)
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20 December 2010 Is Dividend growth model and Gordon's Model for the valuation of shares are one and the same?

Thanx in advance

CA Gunjan Kedia

CA Gunjan Kedia (Expert)
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22 December 2010 Dear Shruti,

u r right in saying that dividend growth model and gordon model are one and the same for valuing shares. here's the formula:

Po = D1/(Ke-g)

g = growth rate.
Po = Price at the begining.
D1 = Dividend at the year end.

if g is not directly given in the problem;
then, g = b*r

b = retention ratio.
r = rate of return on capital employed.