# Stock Valuation Calculator

## What does it do?

This stock valuation calculator uses the present value of growing perpetuity formula to calculate the stock valuation based on a series of ever increasing dividend payments.

The stock valuation formula is based on the Gordon growth model which is discussed in more detail in our How to Value a Stock tutorial.

Because of the requirement for a constantly growing dividend payment, the calculator is best suited to a stable business which is expected to experience steady growth, and to pay out regular increasing dividends to shareholders.

## Stock Valuation Formula

The calculator uses the present value of a growing perpetuity formula as shown below:

`PV = Stock Price = Pmt / (i - g)`
Variables used in the formula
Pmt = Dividend at the end of the first year (Periodic payment)
i = Rate of return for equity investors (Discount rate)
g = Dividend growth rate

## Instructions

The Excel stock valuation calculator, available for download below, is used to compute a stock valuation by entering details relating to the first dividend, the constant dividend growth rate, and the investors required rate of return. The calculator is used as follows:

### Step 1

Enter the first dividend (Pmt). This is the dividend received at the end of the first period.

### Step 2

Enter the dividend growth rate (g). The dividend growth rate is the rate at which the first dividend (Pmt) is growing each period. The rate should be for a period, so for example, if the period is a year, then the rate should be the yearly dividend growth rate.

### Step 3

Enter the required investor return rate (i). The required investor return rate is the rate used to discount each payment amount back from the end of the period in which is was made, to the beginning of period 1 (today). The rate should be for a period, so for example, if the period is a year, then the rate should be the yearly rate.

### Step 4

The stock valuation calculator works out the present value of the dividend payments which is amount an investor should be prepared to pay for the stock. The answer is the value today (beginning of period 1) of an a regular dividend which is growing at a constant rate (g), received at the end of each period forever, and discounted at the investors required rate of return (i).