Equity Valuation – The Dividend Discount Model and Method of Comparables

This video covers the following learning objectives:

Value Equity Using Dividend Discount Models (DDM)

• Apply the Gordon Growth Model (Constant Growth DDM) to estimate the intrinsic value of equity.

• Apply the Two-Stage Dividend Discount Model for firms with high initial growth followed by stable growth.

• Use Microsoft Excel to:

  • Forecast dividend streams

  • Calculate terminal value

  • Discount future cash flows to present value

Certifications Covered:

• CFA Level 1

• Canadian Securities Course (CSC)

• Certified Financial Planner (CFP)

• Financial Risk Manager (FRM – partial coverage)

Value Equity Using Comparable Company Analysis (Comps)

• Use market-based ratios such as:

  • Price-to-Earnings (P/E)

  • Price-to-Book (P/B)

  • EV/EBITDA

• Estimate equity value based on peer-group multiples.

• Build comparables tables in Excel to benchmark valuation.

Certifications Covered:

• CFA Level 1

• CSC

• CFP

• FRM (conceptually supports benchmarking under risk frameworks)

Compare and Interpret Results from DDM and Comps

• Evaluate when each method is more appropriate (based on dividend policy, firm maturity, public/private status, sector).

• Integrate both models into a complete valuation strategy.

• Identify the strengths and limitations of each model in practical use.

Certifications Covered:

• CFA Level 1

• CSC

• CFP

Understand the Risk Implications of Valuation Inputs (FRM Integration)

• Analyze sensitivity of valuation to changes in growth rate, discount rate, and market sentiment.

• Conduct Excel-based stress testing using data tables to observe changes in output under different input assumptions.

• Highlight risks inherent in relying on forward-looking assumptions and market multiples.

Certifications Covered:

• FRM Part 1

• CFA Level 1 (risk context relevant to valuation models)