What Is the Gordon Growth Model?
Invented in the 1950s by Myron Gordon, the Gordon Growth Model is a financial equation used to determine the value of a stock. As a different take on the discounted cash flow model, the equation takes into account the dividend per share, rate of return, and dividend growth rate. This method of deduction is primarily used only with stable, blue-chip stocks. The Gordon equation is widely accepted by the financial community but may have several limitations. The Gordon Growth Model is a variation of the cash flow model. The cash flow model is also a financial equation, but it covers a wider range of products. By examining incoming and outgoing finances, the cash flow model can provide the present values of projects, companies, and assets. This basic tool is skewed slightly and applied to the stock market in the Gordon model.
