Gordon (Constant) Growth Dividend Discount Model and Two-stage Dividend Discount Model
Gordon (Constant) Growth Dividend Discount Model As the name implies, the Gordon (constant) growth dividend discount model assumes dividends grow indefinitely at a constant rate. $$ V_0=\frac{D_1}{r-g} $$ Where: \(D_1\) = expected dividends in year 1 Note that this is…
Multistage Dividend Discount Model
The Gordon (constant) growth dividend discount model is particularly useful for valuing the equity of dividend-paying companies that are insensitive to the business cycle and in a mature growth phase. On the other hand, multistage models are often used to…
Using Price Multiples to Value Equity
The use of price multipliers to earnings, book value, and sales have all shown to have significant predictive value in determining relative future returns, implying that price multiples can be an effective tool for the valuation of companies. In addition,…
Price Multiples
The concept of price multiples refers to ratios that compare a company’s share price with a financial metric, allowing for an assessment of the stock’s relative value. These ratios are commonly used by practitioners for screening purposes, identifying stocks for…
Enterprise Value Multiples
Enterprise value (EV), often viewed as the cost of a takeover, is most frequently determined as market capitalization plus the market value of preferred stock plus the market value of debt minus cash equivalents and short-term investments. EV/EBITDA EBITDA (earnings before interest,…
Asset-based Valuation Models
An asset-based valuation of a company uses estimates of the market or fair value of the company’s assets and liabilities and, thus, is most appropriate for companies with a high proportion of current assets and current liabilities and few/insignificant intangible…
Categories of Valuation Model
Free Cash Flow to Equity (FCFE) Model Gordon (Constant) Growth Dividend Discount Model Practice CFA equity valuation concepts with our Free Trial. Multistage Dividend Discount Model Advantages: allows for more flexibility than the constant growth model as an analyst can…
CFA Level 1 Study Notes – Alternative Investments
Study Session 17 Reading 47 (2022) – Introduction to Alternative Investments -LOS 47a: describe types and categories of alternative investments; -LOS 47b: describe characteristics of direct investment, co-investment, and fund investment methods for alternative investments; -LOS 47c: describe investment and…
Alternative Investments vs. Traditional Investments
Traditional Investments Every possible investment choice is either an alternative or a traditional investment. Traditional investments are: Traditional is not a synonym for “common,” and neither is alternative a synonym for “unusual.” Compare Alternative and Traditional Investments with Our Free…
Categories of Alternative Investments
With no true consensus as to any “official” categories of alternative investments, it’s still useful to present a list to aid in your understanding. Hedge Funds are private equity funds that hold a variety of traditional and alternative assets, long-and-short…
