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Gordon Growth Model
In financial economics, the dividend discount model (DDM) is a method of valuing the price of a company's capital stock or business value based on the assertion that intrinsic value is determined by the sum of future cash flows from dividend payments to shareholders, discounted back to their present value. 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 growth rate in perpetuity expected ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Capital Stock
In economics, capital goods or capital are "those durable produced goods that are in turn used as productive inputs for further production" of goods and services. A typical example is the machinery used in a factory. At the macroeconomic level, "the nation's capital stock includes buildings, equipment, software, and inventories during a given year." The means of production is as a "... series of heterogeneous commodities, each having specific technical characteristics ..." "capital goods", are one of the three types of intermediate goods used in the production process, the other two being land and labour. The three are also known collectively as "primary factors of production". This classification originated during the classical economics period and has remained the dominant method for classification. Capital can be increased by the use of a production process (see production function and factors of production). Outputs of the production process are normally classifi ... [...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 co ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Financial Models
An economic model is a theoretical construct representing economic processes by a set of variables and a set of logical and/or quantitative relationships between them. The economic model is a simplified, often mathematical, framework designed to illustrate complex processes. Frequently, economic models posit structural parameters. A model may have various exogenous variables, and those variables may change to create various responses by economic variables. Methodological uses of models include investigation, theorizing, and fitting theories to the world. Overview In general terms, economic models have two functions: first as a simplification of and abstraction from observed data, and second as a means of selection of data based on a paradigm of econometric study. ''Simplification'' is particularly important for economics given the enormous complexity of economic processes. This complexity can be attributed to the diversity of factors that determine economic activity; the ... [...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 that are sold to investors through equity crowdfunding platforms. Investments are usually made with an investment strategy in mind. Size of the market The total market capitalization of all publicly traded stocks worldwide rose from US$2.5 trillion in 1980 to US$111 trillion by the end of 2023. , 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 2022 are in t ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Discounted Cash Flow
The discounted cash flow (DCF) analysis, in financial analysis, is a method used to value a security, project, company, or asset, that incorporates the time value of money. Discounted cash flow analysis is widely used in investment finance, real estate development, corporate financial management, and patent valuation. Used in industry as early as the 1700s or 1800s, it was widely discussed in financial economics in the 1960s, and U.S. courts began employing the concept in the 1980s and 1990s. Application In discount cash flow analysis, all future cash flows are estimated and discounted by using cost of capital to give their present values (PVs). The sum of all future cash flows, both incoming and outgoing, is the net present value (NPV), which is taken as the value of the cash flows in question; see aside. For further context see ; and for the mechanics see valuation using discounted cash flows, which includes modifications typical for startups, private equity and ... [...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 ... [...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 during a defined accounting period, period of time, often a year. It is a key measure of corporate profitability, focusing on the interests of the company's owners (shareholders),Drake, P. P., Financial ratio analysis, p. 11, published on 15 December 2012 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. Calculation Preferred stock rights have precedence over common stock. Therefore, dividends on preferred shares are subtracted before calculating the EPS. When preferred shares are cumulative (i.e. dividends accumulate as payable if unpaid in the given accounting year), annual dividends are deducted whether or not they have been declared. Dividends in ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Modigliani–Miller Theorem
The Modigliani–Miller theorem (of Franco Modigliani, Merton Miller) is an influential element of economic theory; it forms the basis for modern thinking on capital structure. The basic theorem states that in the absence of taxes, bankruptcy costs, agency costs, and asymmetric information, and in an efficient market, the enterprise value of a firm is unaffected by how that firm is financed. This is not to be confused with the value of the equity of the firm. Since the value of the firm depends neither on its dividend policy nor its decision to raise capital by issuing shares or selling debt, the Modigliani–Miller theorem is often called the capital structure irrelevance principle. The key Modigliani–Miller theorem was developed for a world without taxes. However, if we move to a world where there are taxes, when the interest on debt is tax-deductible, and ignoring other frictions, the value of the company increases in proportion to the amount of debt used.Fernandes, Nuno. Fi ... [...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 ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Infinite Series
In mathematics, a series is, roughly speaking, an addition of infinitely many terms, one after the other. 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 in combinatorics through generating functions. The mathematical properties of infinite series make them widely applicable in other quantitative disciplines such as physics, computer science, statistics and finance. Among the Ancient Greeks, the idea that a potentially infinite summation could produce a finite result was considered paradoxical, most famously in Zeno's paradoxes. Nonetheless, infinite series were applied practically by Ancient Greek mathematicians including Archimedes, for instance in the quadrature of the parabola. The mathematical side of Zeno's paradoxes was resolved using the concept of a limit during the 17th century, especially through the early calculus of Isaac Newton. The ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Dividend
A dividend is a distribution of profits by a corporation to its shareholders, after which the stock exchange decreases the price of the stock by the dividend to remove volatility. The market has no control over the stock price on open on the ex-dividend date, though more often than not it may open higher. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-invested in the business (called retained earnings). The current year profit as well as the retained earnings of previous years are available for distribution; a corporation is usually prohibited from paying a dividend out of its capital. Distribution to shareholders may be in cash (usually by bank transfer) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or by share repurchase. In some cases, the distribution may be of assets. The dividend received by ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
