Calculating Free Cash Flow to the Firm: Method #2: Cash Flow From Operations
February 12, 2025
As explained in the previous articles, the infrastructure sector is facing a significant funding gap. There is an urgent need to double the spending on infrastructure projects. One of the ways to fulfill this gap is by increasing the participation of the private sector in infrastructure projects. At the present moment, the private sector is […]
Commercial banks provide various types of services to their customers. One such area of service is that of liquidity management. Commercial banks offer several liquidity management arrangements to their clients. Notional pooling is one such arrangement that is very popular amongst corporations that have many subsidiaries. In this article, we will have a closer look […]
Commercial or corporate banking has undergone a sea of change in the recent past. All these changes have not been related to technology. Some of the changes have also been related to ideology. The rise of the concept of sustainable corporate banking signifies an ideological shift in the commercial banking industry. Earlier, corporate banking was […]
Retail organizations across the world face multiple challenges when it comes to managing their business operations. Managing retail warehouses is one such challenge. The task of effectively managing a warehouse can be quite complicated. This is because of the fact that retail warehouses typically contain several thousand SKUs. These SKUs can be stored in pallets […]
2017 has been an exceptional year for stock markets across the world. The start of 2018 has been no different at all. This has got many people wondering whether we are in a manic phase. There is no reason why this possibility should be ruled out. The Dow Jones Index has seen an uptick in […]
The Gordon growth model is a well known and widely known model for valuing equity securities. However, as with every model, there are some pros and cons that need to be understood before this model is applied. Understanding of these pros and cons will help differentiating between situations wherein it would be prudent to apply the Gordon growth model and situations wherein that would not be the case.
The points in favor of the Gordon growth model i.e. the pros have been listed first:
At the same time, the points against Gordon growth model i.e. the cons are as follows:
As such the Gordon growth model is susceptible to the “garbage in garbage out” syndrome. Even if slightly inaccurate assumptions are used, the results will be way off the mark!
To conclude, it would be apt to say that Gordon growth model has more pros than cons. Analysts must be careful to avoid the pitfalls associated with the use of the model. Overall, it is a handy tool to estimate the value of equity of any company.
Your email address will not be published. Required fields are marked *