Lesson 9 of 9 · All lessons in this module
- Intrinsic value, mispricing and the three model familiesVideo lesson
- Dividends, splits, buybacks and the payment timelineVideo lesson
- Present value models: DDM and FCFEVideo lesson
- Preferred stock and the Gordon growth modelVideo lesson
- Multistage dividend discount modelsVideo lesson
- Price multiples and the method of comparablesVideo lesson
- Integrated cases: why multiples differ, the justified P/E and comparables
- Enterprise value multiples, asset-based valuation and choosing a modelVideo lesson
- Integrated cases: growth from dividend history, enterprise value and reconciling models
Lesson 9 of 9 · 18 min
Integrated cases: growth from dividend history, enterprise value and reconciling models
Estimate g from the dividend history (five observations make four growth periods), stress the Gordon value, build enterprise value with debt at market value, and reconcile several models by examining the assumptions behind their differences.
In short
- n observations = n − 1 growth periods: CAGR = (last / first)^(1/(n − 1)) − 1; cross-check against retention × ROE.
- Gordon value = D0 × (1 + g) / (r − g); value − D0/r is the part of value that comes from growth.
- Small changes in g and r can move the value by a quarter or more: stress-test before concluding.
- Market value of debt: discount each scheduled payment at the government yield plus a credit spread; add other liabilities at book; EV = market cap + debt (market) − cash.
- When models disagree, examine the assumptions behind each; do not average them.
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