share valuation models
This query is : Resolved
CA Shruti kuchhal
(Querist)
20 December 2010
Is Dividend growth model and Gordon's Model for the valuation of shares are one and the same?
Thanx in advance
Thanx in advance
CA Gunjan Kedia
(Expert)
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.
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.
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