Gordon Growth Model | Definition | Merits & Demerits

In this video on Gordon Growth Model, we will study the definition and types of Gordon Growth Model along with some merits and demerits.

𝐖𝐡𝐚𝐭 𝐢𝐬 𝐆𝐨𝐫𝐝𝐨𝐧 𝐆𝐫𝐨𝐰𝐭𝐡 𝐌𝐨𝐝𝐞𝐥?
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Gordon growth model is called as Dividend discount model, which is used to assess the intrinsic value of exclusive stock by discounting future dividend payments by company.

𝐓𝐲𝐩𝐞𝐬 𝐨𝐟 𝐆𝐨𝐫𝐝𝐨𝐧 𝐆𝐫𝐨𝐰𝐭𝐡 𝐌𝐨𝐝𝐞𝐥
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#1 - Stable Model
#2 - Multistage Growth Model

Stable Gordon Growth Formula

Value of Stock = D1 /( k - g)

𝐌𝐞𝐫𝐢𝐭𝐬 𝐨𝐟 𝐆𝐨𝐫𝐝𝐨𝐧 𝐆𝐫𝐨𝐰𝐭𝐡 𝐌𝐨𝐝𝐞𝐥
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#1 - Gordon's growth model is very useful for stable firms ; firms with good cash flow and restricted business expenses.

#2 - The model does not take into account market conditions, so it can be used to assess or equate firms of various sizes and different industries.

𝐃𝐞𝐦𝐞𝐫𝐢𝐭𝐬 𝐨𝐟 𝐆𝐨𝐫𝐝𝐨𝐧 𝐆𝐫𝐨𝐰𝐭𝐡 𝐌𝐨𝐝𝐞𝐥
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#1 - For firms with irregular cash flows, dividend patterns or financial leverage, the model can not be used.

#2 - The model does not take into account market conditions or other non - dividend paying factors such as the firm's size, the company's product value, market perception, local and geopolitical factors.

To know more about 𝐆𝐨𝐫𝐝𝐨𝐧 𝐆𝐫𝐨𝐰𝐭𝐡 𝐌𝐨𝐝𝐞𝐥, you can go to this 𝐥𝐢𝐧𝐤 𝐡𝐞𝐫𝐞:- https://www.wallstreetmojo.com/gordon...

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