The Gordon formula is a formula for the computation of the bar value of a share or an enterprise with rising dividends. It reads:

P_0 = G_1 \ (1-b)/k cdot - b \ cdot rh.

Here are:

P_0 the productive value, market price, exchange rate value of the share in t_0.

G_1 the profit in t_1 (expected profit).

b the accumulating capital ratio.

1 - b the payment ratio.

G_1* (1 - b) the dividend in t_1.

k the productive value expected by the shareholder (refers to the market price of the share, not to balance own capital funds).

r_E the expected net yield from the capital use of the retained profits b - G_1.

b * r_E the growth rate for profits, dividend and customer.

• Profit:

G_1 = G_0* (1 + w)

w = growth rate

G_2 = G_0 * (1 + w) ^2 etc.

• Dividend:

D_1 = G_0 \ cdot (1 + w) \ cdot (1 - b)

D_2 = G_0 \ cdot (1 + w) ^2 \ cdot (1 - b) etc.

Articles in category "Gordon formula"

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