Valuation Model Formulas Used:

This tool employs three common valuation methodologies. Choose the one that best fits the company's profile and your available data.

1. Discounted Cash Flow (DCF) Model (Simplified)

Calculates the intrinsic value by discounting future earnings/cash flows back to the present. Assumes earnings grow at a projected rate for a period, then at a perpetual rate.

Intrinsic Value = [EPS_t * (1 + g_eps)^t / (1 + r)^t] (for t = 1 to N years) + [Terminal Value / (1 + r)^N]
Where:
Terminal Value = EPS_N * (1 + g_perpetual) * (P/E_comparable) / (1 + r)^N
  OR
Terminal Value = EPS_N * (1 + g_perpetual) / (r - g_perpetual) (if using Gordon Growth for Terminal Value)

EPS_t = Earnings Per Share in year 't'
g_eps = Projected Annual EPS Growth Rate
r = Discount Rate (Required Rate of Return)
N = Number of high-growth years (simplified to 5 years in this tool for initial projection)
g_perpetual = Perpetual Growth Rate of earnings
P/E_comparable = Price-to-Earnings Ratio of comparable companies (used for terminal value multiplier)
                

• **Assumption:** EPS grows at `g_eps` for 5 years, then a terminal value is calculated using `P/E_comparable` multiple on the 5th year's EPS. Alternatively, a Gordon Growth approach for terminal value is used: `EPS_N * (1 + g_perpetual) / (r - g_perpetual)`. We use the P/E multiple for simplicity here.

2. Gordon Growth Model (GGM) / Dividend Discount Model (DDM)

Values a stock based on the present value of its future dividends, assuming dividends grow at a constant rate indefinitely.

Intrinsic Value = D1 / (r - g)
Where:
D1 = Expected Dividend per Share in the next year (Current DPS * (1 + g_dividend))
r = Required Rate of Return (Discount Rate)
g = Constant Dividend Growth Rate (Perpetual Growth Rate, assuming it applies to dividends)
                

• **Assumption:** Dividends grow at a constant rate `g` forever. This `g` should be less than `r`.
• This model is highly sensitive to inputs.

3. Multiples Valuation (P/E Ratio Based)

Estimates intrinsic value by multiplying the company's earnings per share by the average P/E ratio of comparable companies or the industry average.

Intrinsic Value = EPS_Trailing * P/E_Comparable
Where:
EPS_Trailing = Earnings Per Share for the last 12 months
P/E_Comparable = Price-to-Earnings Ratio of comparable companies or industry
                

• **Assumption:** The company should trade at a similar multiple to its peers.
• This is a quick and simple relative valuation method.