Equities i r j hawkins econ 136 financial economics 5

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Unformatted text preview: sagreement among analysts. Equities I: R. J. Hawkins Econ 136: Financial Economics 5/ 20 Earnings and Dividend Growth Fundamental Analysis Growth:“The sustainable growth rate is the rate of earnings and dividend growth that can be sustained for a given level of return on equity, keeping the capital structure constant over time and without issuing additional common stock.” The basic equation for growth is g = b × ROE where g ≡ sustainable growth rate b ≡ earnings retention rate = (1 - dividend payout rate) ROE ≡ return on equity Equities I: R. J. Hawkins Econ 136: Financial Economics 6/ 20 Earnings and Dividend Growth Fundamental Analysis The DuPont model extends ROE into the firm: ROE = = = Net Income Equity Net income Total Assets × Total Assets Equity Net income Sales Total Assets × × Total￿￿ Assets ￿ Sales ￿ ￿ ￿￿ ￿ ￿ Equity ￿ ￿￿ profit margin asset turnover leverage You need to project these items forward. Let’s move on to some examples. Equities I: R. J. Hawkins Econ 136: Financial Economics 7/ 20 Gordon Growth Model Example: Con Ed Consolidated Edison (Con Ed) in May 20...
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This note was uploaded on 01/23/2014 for the course ECON 136 taught by Professor Szeidl during the Fall '08 term at University of California, Berkeley.

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