[Verse 1] When you want to know what equity's worth today Three approaches light the valuation way Asset-based looks at what the books will say Market multiples show what others pay But income approach is where smart money stays Future cash flows discounted all the way [Chorus] Dividend discount, that's the gold standard way Present value of payments coming your way Risk and return, they dance hand in hand Higher the risk, higher return you demand D-D-M, Dividend Discount Model Makes complex valuations so much more simple [Verse 2] Gordon Growth assumes dividends will rise At a constant rate that never changes size Divide next year's dividend by the spread Required return minus growth rate instead But watch out when growth exceeds required return That formula will crash and burn [Chorus] Dividend discount, that's the gold standard way Present value of payments coming your way Risk and return, they dance hand in hand Higher the risk, higher return you demand D-D-M, Dividend Discount Model Makes complex valuations so much more simple [Verse 3] Multi-stage models handle changing growth High growth early, then mature and slow growth CAPM helps us find required return Beta times market premium, lesson learned Risk-free rate plus compensation for the ride Systematic risk you cannot hide [Bridge] When dividends are zero, earnings take the stage Free cash flow models turn another page Terminal value captures long-term worth Discount everything back to present earth Remember that intrinsic value's goal Is fundamental worth, not market's role [Chorus] Dividend discount, that's the gold standard way Present value of payments coming your way Risk and return, they dance hand in hand Higher the risk, higher return you demand D-D-M, Dividend Discount Model Makes complex valuations so much more simple [Outro] From Gordon's simple growth to multi-stage design Equity valuation is both art and science divine Discount the future, respect the risk you bear That's how professionals value equity with care
← Financial Analysis Techniques | Intercorporate Investments →