Myron J. Gordon 1920 - 2010

**Introduction:**

In part-2 of this series we applied the concept of the present value of *all* future cash flows in the form of the dividend discount model. A variation of this is called the Gordon Growth Model ^{1} which deals with the infinite summation problem more directly.

**The Gordon Growth Model (GGM):**

The summation in the present value model is an infinite geometric series. It can be mathematically transformed ^{2} into what is known as the Gordon Growth Model, or GGM for short. Although cash flow can be represented by several measures, let’s use dividends for illustration purposes.

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Tags: cash flow, discount rate, dividend discount model, Gordon Growth Model, intrinsic value, payout ratio, PE ratio, present value, required rate of return, ROE, S&P500

Fundamental Analysis | Sargon Zia | August 19, 2010 6:23 pm | Comments (1)

**Introduction:**

In part-1 of this series, we discussed the concept that a stock’s intrinsic value is the present value of its cash flows. Here in part-2 we will introduce the general form of the present value model, and discuss the dividend discount model in more detail.

The present value model discounts *all* future cash flows to determine a stock’s present value, V_{0}, which is its intrinsic value at t=0. Discounting all future cash flows necessitates using the infinity sign (∞) in the summation. The foundational formula for the present value model is: Read more »

Tags: cash flow, discount rate, dividend discount model, fundamental analysis, Gordon Growth Model, intrinsic value, John Burr Williams, multistage model, payout ratio, present value, required rate of return, terminal value

Fundamental Analysis | Sargon Zia | August 1, 2010 9:15 am | Comments (1)