مشاركة: Valuing Debt and Equity
aluing Equity Securities (Dividend Valuation Model)
The dividend valuation model is used to determine the intrinsic value of a company's share price, by discounting the value of future dividends to their present value. Using time value of money principles, we can determine the price of a stock today based on the discounted value of future cash flows. We refer to this price as the intrinsic value of the stock because it is the value of the stock that is perceived based on all available information.
If the intrinsic value of the stock is greater than the current market share price then the stock is undervalued. If the intrinsic value of the stock is less than the current market share price then the stock is overpriced.
The dividend valuation model can be modified for patterns including a constant dividend, a constantly growing dividend and a dividend that grows at different rate depending on the period in the future.