Contents
- Index
Stocks: Residual Earnings Model
©2009 OS Financial Trading System
In the FTS Real Time Client the bottom RHS of the screen lets you select the analytical support from what is available. In this exercise we are using "Stocks: Residual Earnings Model" so select this support from the yellow part of the screen below.
The bottom RHS will now appear as follows. It has the main inputs from the exercise to date as well as derived values from this model. The derived values will let you make additional inferences from the current market price.
In particular the following fields are available:
RE_BV (Book Value)
RE_D (Current Dividend)
RE_D1 (Next year's dividend)
RE_EPS (Current EPS)
RE_EPS1 (Next year's EPS)
RE_EPS2 (Following year's EPS)
RE_Y1 (Number of years in abnormal growth stage)
RE_G1 (Abnormal growth --- e.g., 5-year abnormal growth)
RE_G2 (Normal Growth)
RE_Ke1 (Cost of Equity Capital abnormal growth phase)
RE_Ke2 (Cost of Equity Capital normal growth phase)
RE_PR (Payout Ratio)
In addition the derived fields are:
Market Price - Current spot stock price
PV Abnormal Earnings --- PV of residual earnings in abnormal growth phase
PV Continuing Value - PV of residual earnings in normal growth phase
Intrinsic Value (sum of PV Abnormal + PV Continuing Value + Book Value)
Premium over Book --- Value of future residual earnings stream
Over/Under --- market price relative to intrinsic value
Current Summary of Key Inputs:
I. Book value per share = 15,380/1,310.88 = $11.73258 per share.
II. Dividend per Share = $2.10.
III. Dividend Payout Ratio (Relative to Comprehensive Earnings) = $2.10/$4.7113 = 0.446
IV. Earnings per share = $12,648/1,310.88 = $9.648
V. Comprehensive Earnings per share = $4.7113
VI. Comprehensive EPS 1 year from now $4.7113*1.09775 = $5.1718, Growth 0.09775
VII. Comprehensive EPS 2-years from now $4.7113*1.09775*1.10675 = $5.724, Growth 0.10675
VIII. 5-Year Growth = 0.11465
IX. Normal Growth = 0.045
X. Projected Dividend Per Share (Next Year - forward annual dividend rate e.g., Yahoo.com) = $2.20
XI. Years in Abnormal Growth Stage 1: 5-years
XII. Cost of equity capital (stages 1 and 2): 0.086