Traditional Culture Encyclopedia - Traditional culture - The formula for the residual earnings valuation model
The formula for the residual earnings valuation model
The basic formula for the residual earnings valuation model is:
It can be further considered what is the source of the increase in the net income of the firm?
ROEt+1 represents the return on equity for period t+1. So the above model can be expressed as:
And ROE, the return on net assets, can be further decomposed into return on assets, net sales margin, equity multiplier, etc., based on the DuPont system of financial analysis, all of which parameters can be obtained from the financial statements of the company, and as for the necessary rate of return demanded by the investor, it can be estimated based on the CAPM model or the APT model.
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