FIN 501 Study Guide - Dividend Discount Model, Retained Earnings, Earnings Yield
31 Jul 2012
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Fundamental analysis: examination of a firm"s accounting statements and other financial and economic information to assess the economic value of a company"s stock. Includes earnings per share, cash flow, book equity value, and sales. Cautionary note is there is good reason to believe that too-simple techniques that rely on widely available information are not likely to yield systematically superior investment results. The economic value of a security is properly measured by the sum of its future cash flows, where the cash flows are adjusted for risk and the time value of money. Dividend discount model (ddm): method of estimating the value of a share of stock as the present value of all expected future dividend payments, where dividends are adjusted for risk and the time value of money. V(0) = d1/(1+k) + d2/(1+k)2 + d3/(1+k)3 + + dt/(1+k)t. Constant growth rate model: a version of the dividend discount model that assumes a constant dividend growth rate.
