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Dividend Discount Model
In finance and investing, the dividend discount model (DDM) is a method of valuing the price of a company's stock based on the fact that its stock is worth the sum of all of its future dividend payments, discounted back to their present value. In other words, DDM is used to value stocks based on the net present value of the future dividends. The constant-growth form of the DDM is sometimes referred to as the Gordon growth model (GGM), after Myron J. Gordon of the Massachusetts Institute of Technology, the University of Rochester, and the University of Toronto, who published it along with Eli Shapiro in 1956 and made reference to it in 1959. Their work borrowed heavily from the theoretical and mathematical ideas found in John Burr Williams 1938 book "The Theory of Investment Value," which put forth the dividend discount model 18 years before Gordon and Shapiro. When dividends are assumed to grow at a constant rate, the variables are: P is the current stock price. g is the constant gr ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Finance
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of financial economics bridges the two). Finance activities take place in financial systems at various scopes, thus the field can be roughly divided into personal, corporate, and public finance. In a financial system, assets are bought, sold, or traded as financial instruments, such as currencies, loans, bonds, shares, stocks, options, futures, etc. Assets can also be banked, invested, and insured to maximize value and minimize loss. In practice, risks are always present in any financial action and entities. A broad range of subfields within finance exist due to its wide scope. Asset, money, risk and investment management aim to maximize value and minimize volatility. Financial analysis is viability, stability, and profitabil ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
The Theory Of Investment Value
John Burr Williams (November 27, 1900 – September 15, 1989) was an American economist, recognized as an important figure in the field of fundamental analysis, and for his analysis of stock prices as reflecting their " intrinsic value". He is best known for his 1938 text ''The Theory of Investment Value'', based on his PhD thesis, in which he articulated the theory of discounted cash flow (DCF) based valuation, and in particular, dividend based valuation. Biography Williams studied mathematics and chemistry at Harvard University, and enrolled at Harvard Business School in 1923. After graduating, he worked as a security analyst, where he realised that "how to estimate the fair value was a puzzle indeed... To be a good investment analyst, one needs to be an expert economist also." In 1932 he enrolled at Harvard for a PhD in economics, with the hopes of learning what had caused the Wall Street Crash of 1929 and the subsequent economic depression of the 1930s. For his t ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Stock Market
A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, as well as stock that is only traded privately, such as shares of private companies which are sold to investors through equity crowdfunding platforms. Investment is usually made with an investment strategy in mind. Size of the market The total market capitalization of all publicly traded securities worldwide rose from US$2.5 trillion in 1980 to US$93.7 trillion at the end of 2020. , there are 60 stock exchanges in the world. Of these, there are 16 exchanges with a market capitalization of $1 trillion or more, and they account for 87% of global market capitalization. Apart from the Australian Securities Exchange, these 16 exchanges are all in North America, Europe, or Asia. By country, the largest stock markets as of January 202 ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Terminal Value (finance)
In finance, the terminal value (also known as “continuing value” or “horizon value” or "TV") of a security is the present value ''at a future point in time'' of all future cash flows when we expect stable growth rate forever. It is most often used in multi-stage discounted cash flow analysis, and allows for the limitation of cash flow projections to a several-year period; see Forecast period (finance). Forecasting results beyond such a period is impractical and exposes such projections to a variety of risks limiting their validity, primarily the great uncertainty involved in predicting industry and macroeconomic conditions beyond a few years. Thus, the terminal value allows for the inclusion of the value of future cash flows occurring beyond a several-year projection period while satisfactorily mitigating many of the problems of valuing such cash flows. The terminal value is calculated in accordance with a stream of projected future free cash flows in discounted cash flow ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Earnings Per Share
Earnings per share (EPS) is the monetary value of earnings per outstanding share of common stock for a company. It is a key measure of corporate profitability and is commonly used to price stocks. In the United States, the Financial Accounting Standards Board (FASB) requires EPS information for the four major categories of the income statement: continuing operations, discontinued operations, extraordinary items, and net income. Calculating Preferred stock rights have precedence over common stock. Therefore, dividends on preferred shares are subtracted before calculating the EPS. When preferred shares are cumulative, annual dividends are deducted whether or not they have been declared. Dividends in arrears are not relevant when calculating EPS. ;Basic formula :Earnings per share = ;Net income formula :Earnings per share = ;Continuing operations formula :Earnings per share = Diluted earnings per share ''Diluted earnings per share'' (diluted EPS) is a company's earning ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Growth Stock
In finance, a growth stock is a stock of a company that generates substantial and sustainable positive cash flow and whose revenues and earnings are expected to increase at a faster rate than the average company within the same industry. A growth company typically has some sort of competitive advantage (a new product, a breakthrough patent, overseas expansion) that allows it to fend off competitors. Growth stocks usually pay smaller dividends, as the companies typically reinvest most retained earnings in capital-intensive projects. Criteria Analysts compute return on equity (ROE) by dividing a company's net income into average common equity. To be classified as a growth stock, analysts generally expect companies to achieve a 15 percent or higher return on equity. CAN SLIM is a method which identifies growth stocks and was created by William O'Neil a stock broker and publisher of ''Investor's Business Daily''. In academic finance, the Fama–French three-factor model relies on book ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Cost Of Capital
In economics and accounting, the cost of capital is the cost of a company's funds (both debt and equity), or from an investor's point of view is "the required rate of return on a portfolio company's existing securities". It is used to evaluate new projects of a company. It is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet. Basic concept For an investment to be worthwhile, the expected return on capital has to be higher than the cost of capital. Given a number of competing investment opportunities, investors are expected to put their capital to work in order to maximize the return. In other words, the cost of capital is the rate of return that capital could be expected to earn in the best alternative investment of equivalent risk; this is the opportunity cost of capital. If a project is of similar risk to a company's average business activities it is reasonable to use the company's average cos ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Infinite Series
In mathematics, a series is, roughly speaking, a description of the operation of adding infinitely many quantities, one after the other, to a given starting quantity. The study of series is a major part of calculus and its generalization, mathematical analysis. Series are used in most areas of mathematics, even for studying finite structures (such as in combinatorics) through generating functions. In addition to their ubiquity in mathematics, infinite series are also widely used in other quantitative disciplines such as physics, computer science, statistics and finance. For a long time, the idea that such a potentially infinite summation could produce a finite result was considered paradoxical. This paradox was resolved using the concept of a limit during the 17th century. Zeno's paradox of Achilles and the tortoise illustrates this counterintuitive property of infinite sums: Achilles runs after a tortoise, but when he reaches the position of the tortoise at the beginning of ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Cost Of Equity
In finance, the cost of equity is the return (often expressed as a rate of return) a firm theoretically pays to its equity investors, i.e., shareholders, to compensate for the risk they undertake by investing their capital. Firms need to acquire capital from others to operate and grow. Individuals and organizations who are willing to provide their funds to others naturally desire to be rewarded. Just as landlords seek rents on their property, capital providers seek returns on their funds, which must be commensurate with the risk undertaken. Firms obtain capital from two kinds of sources: lenders and equity investors. From the perspective of capital providers, lenders seek to be rewarded with interest and equity investors seek dividends and/or appreciation in the value of their investment (capital gain). From a firm's perspective, they must pay for the capital it obtains from others, which is called its cost of capital. Such costs are separated into a firm's cost of debt and cost of ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
John Burr Williams
John Burr Williams (November 27, 1900 – September 15, 1989) was an American economist, recognized as an important figure in the field of fundamental analysis, and for his analysis of stock prices as reflecting their " intrinsic value". He is best known for his 1938 text ''The Theory of Investment Value'', based on his PhD thesis, in which he articulated the theory of discounted cash flow (DCF) based valuation, and in particular, dividend based valuation. Biography Williams studied mathematics and chemistry at Harvard University, and enrolled at Harvard Business School in 1923. After graduating, he worked as a security analyst, where he realised that "how to estimate the fair value was a puzzle indeed... To be a good investment analyst, one needs to be an expert economist also." In 1932 he enrolled at Harvard for a PhD in economics, with the hopes of learning what had caused the Wall Street Crash of 1929 and the subsequent economic depression of the 1930s. For his t ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Investing
Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing is to generate a return from the invested asset. The return may consist of a gain (profit) or a loss realized from the sale of a property or an investment, unrealized capital appreciation (or depreciation), or investment income such as dividends, interest, or rental income, or a combination of capital gain and income. The return may also include currency gains or losses due to changes in the foreign currency exchange rates. Investors generally expect higher returns from riskier investments. When a low-risk investment is made, the return is also generally low. Similarly, high risk comes with a chance of high losses. Investors, particularly novices, are often advised to diversify their portfolio. Diversification has the statistical ef ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
