Understanding the Gordon Growth Model for Stock Valuation
Understanding the Gordon Growth Model for Stock Valuation The Gordon Growth Model (GGM) is a method for the valuation of stocks. Investors use it to determine the relationship between value and return. The model uses the Net Present Value (NPV) of future dividends to calculate assets’ intrinsic value. It’s the most popular variation of the […]
Time Value of Money Explained
Introduction To understand the Time Value of Money, imagine you were offered 100 euros now or 100 euros in three years, what would you prefer? If you are like me, you’d probably prefer the money now. But why is that, when a 100 euros has the same value now and in the future? Having it […]
Materiality in Financial Analysis and Modeling
What is Materiality The materiality of a transaction amount or a financial statement line item is determined based on the impact of a misstatement of information on the intended users of that information. If the stakeholder is most likely to alter their actions if we presented the information correctly, the mistake is considered material. And, […]
Scenario Analysis of Financial Models
Introduction to Scenario Analysis Scenario Analysis represents the process of calculating an estimation model under a variety of scenarios for the future. The idea behind this analysis method is to assess the effect of risk on values in a financial model. Scenario Analysis helps us outline how realistic are the assumptions in our model and […]
Sensitivity Analysis in Financial Modeling
Introduction to Sensitivity Analysis We apply Sensitivity Analysis to a financial model to determine how different values of an independent variable affect a specific dependent variable under a given set of assumptions. We also refer to it as ‘what-if’ or simulation analysis. Performing such analysis helps us predict better the outcome of a decision, based […]