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  • Walter and Gordon Models - Examples

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    PRITEE
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    The document contains calculations for the Walter model and Gordon model to estimate the intrinsic value (P) of a stock. For the Walter model, P is estimated to be Rs. 17 based on an EPS of Rs. 2.25, dividend payout ratio of 60%, required return of 15%, and ROI of 20%. For the Gordon model, P is estimated to be Rs. 19.29 based on EPS of Rs. 2.25, retention ratio of 40%, required return of 15%, and ROI of 8%. Sensitivity analyses for both models are also presented by varying the retention/payout ratios and ROI.

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    walter and gordon models - examples (1)

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    The document contains calculations for the Walter model and Gordon model to estimate the intrinsic value (P) of a stock. For the Walter model, P is estimated to be Rs. 17 based on an EPS of Rs. 2.25, dividend payout ratio of 60%, required return of 15%, and ROI of 20%. For the Gordon model, P is estimated to be Rs. 19.29 based on EPS of Rs. 2.25, retention ratio of 40%, required return of 15%, and ROI of 8%. Sensitivity analyses for both models are also presented by varying the retention/payout ratios and ROI.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    Download as xlsx, pdf, or txt
    70 views4 pages

    Walter and Gordon Models - Examples

    Uploaded by

    PRITEE
    The document contains calculations for the Walter model and Gordon model to estimate the intrinsic value (P) of a stock. For the Walter model, P is estimated to be Rs. 17 based on an EPS of Rs. 2.25, dividend payout ratio of 60%, required return of 15%, and ROI of 20%. For the Gordon model, P is estimated to be Rs. 19.29 based on EPS of Rs. 2.25, retention ratio of 40%, required return of 15%, and ROI of 8%. Sensitivity analyses for both models are also presented by varying the retention/payout ratios and ROI.

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    of 4

    WALTER MODEL

    Sales 1000 𝑃=𝐷/𝑟+((𝐸−𝐷)𝑅𝑂𝐼/𝑟)/𝑟 𝑃=(𝐸(1−𝑏))/


    Costs 700 (𝑟−𝑏.𝑅𝑂𝐼)
    PBT 300
    Tax@25% 75 E-D 0.90
    PAT 225 (E-D)*ROI 0.18
    Dividend (Div) 135 (E-D)*ROI/r 1.20
    No. of shares (n) 100
    Face Value (FV) 10 D/r 9.00
    (E-D)*ROI/r/r 8.00
    Retention Ratio b 40%
    Payout Ratio 1-b 60% P 17.00
    EPS E 2.25 Dividend Yield 7.94%
    DPS D = Div/n 1.35
    Dividend Rate DPS/FV 13.50%

    Required return on equity r 15%


    Return on Investment ROI 20%
    GORDON MODEL

    𝑃=(𝐸(1−𝑏))/
    (𝑟−𝑏.𝑅𝑂𝐼)

    E 2.25
    E*(1-b) 1.35
    r 15%
    b.ROI 8%
    r-b.ROI 7%

    P 19.29
    Dividend Yield 7.00%
    WALTER MODEL

    Sales 1000 𝑃=𝐷/𝑟+


    Costs 700 ((𝐸−𝐷)𝑅𝑂𝐼/𝑟)/𝑟
    PBT 300
    Tax@25% 75 E-D 0.90
    PAT 225 (E-D)*ROI 0.18
    Dividend (Div) 135 (E-D)*ROI/r 1.20
    No. of shares (n) 100
    Face Value (FV) 10 D/r 9.00
    (E-D)*ROI/r/r 8.00
    Retention Ratio b 40%
    Payout Ratio 1-b 60% P 17.00
    EPS E 2.25 Dividend Yield 7.94%
    DPS D = Div/n 1.35
    Dividend Rate DPS/FV 13.50% Sensitivity Analysis
    b ROI ->
    Required return on equity r 15% 17.00 10% 15% 20%
    Return on Investment ROI 20% 10%
    20%
    30%
    GORDON MODEL

    𝑃=(𝐸(1−𝑏))/
    (𝑟−𝑏.𝑅𝑂𝐼)

    E 2.25
    E*(1-b) 1.35
    r 15%
    b.ROI 8%
    r-b.ROI 7%

    P 19.29
    Dividend Yield 7.00%

    Sensitivity Analysis
    b ROI ->
    19.29 10% 15% 20%
    10%
    20%
    30%

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