Gordon Growth Model

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Gordon Growth Model

Gordon Growth Model is a model to determine the fundamental value of stock, based on the future sequence of dividends that mature at a constant rate, provided that the dividend per share is payable in a year, the assumption of the growth of dividend at a constant rate is eternity, the model helps in solving the present value of the infinite series of all future dividends. Since the assumption is based on the constant growth rate of dividends, this formula would be applicable mostly to well established and mature companies. This model was developed by Professor Myron Gordon, hence called Gordon Growth Model.

Related Terms

  • Discounted Cash Flow (DCF)
  • Earnings Before Interest, Taxation, Depreciation & Amortization (EBITDA)
  • Free Cash Flow (FCF)
  • Mid-Year Discount
  • Terminal Multiple
  • Terminal Value (TV)
  • Valuation
  • Weighted Average Cost of Capital (WACC)

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