In this article, I will show you how to perform scenario and sensitivity analyses for effective stock valuation. Scenario analysis evaluates stock valuation under different future conditions by changing key factors such as growth rates, demonstrating how conservative, base, and optimistic growth scenarios can affect valuations. Meanwhile, sensitivity analysis examines the impact of changes in […]
In this article, I will show you how to calculate and interpret the cost of preferred stock for a company. Preferred stock serves as a hybrid financing option for companies, combining features of both debt and equity. As a hybrid security, it offers regular dividends and holds a higher priority than common stock, yet ranks […]
In this article, I will show you how to calculate and interpret the cost of debt for a company. The cost of debt is a fundamental concept in corporate finance, affecting a company's capital structure and financial health by representing the effective interest rate on its debt obligations. Additionally, it serves as a key component […]
In this article, I will show you how to calendarize financial data in valuation models. Calendarization directly adjusts financial data from companies with differing fiscal year ends to match a standard calendar year. This adjustment is essential for ensuring accurate financial comparisons and analyses, especially when evaluating companies within the same industry that operate on […]
In this article, I will demonstrate how to apply mid-year convention, also known as mid-year discounting, in discounted cash flow (DCF) valuation models. Typically, DCF models assume cash flows are received or paid at the end of each period. However, in reality, most businesses generate cash throughout the year. This can lead to standard methods […]
In this article, I will demonstrate how to use the Three-Stage Dividend Discount Model (DDM) to value dividend-paying stocks. As the most advanced among the dividend discount valuation methodologies, this model introduces an initial phase of extraordinary growth, followed by a period where the growth rate either linearly declines or increases, before finally transitioning into […]
In this article, I will demonstrate how to use the Two-Stage Dividend Discount Model (DDM) to value dividend-paying stocks. This model is a refined version of the traditional dividend discount approach, incorporating two distinct phases of dividend growth: initially, a phase of irregular or extraordinary growth, followed by a phase of stable growth into perpetuity. […]
In this article, I will show you how to apply the H-Model for dividend discount valuation. The H-Model, introduced by Fuller and Hsia in 1984 through their seminal paper "A Simplified Common Stock Valuation Model," builds upon the Gordon Growth Model (GGM). This two-stage model begins with an initial phase characterized by an extraordinary growth […]
In this article, I will show you how to apply the Gordon Growth Model (GGM) for dividend discount valuation. Named after American economist Myron J. Gordon, who popularized the model in the 1960s, the GGM is used to estimate the intrinsic value of a stock. It calculates the present value of a future series of […]