Gordon Growth Model

Install and import#

bash

npm install fintech-algorithms

import { gordonGrowthModel } from "fintech-algorithms/fundamental-analysis-and-valuation/intrinsic-valuation/gordon-growth-model";

Signature#

gordonGrowthModel(data)

Capitalises a single next-period dividend as a growing perpetuity, dividing it by the spread between the cost of equity and the perpetual growth rate, and exposes that spread and its reciprocal alongside the resulting value per share.

Parameters#

Name	Type	Notes
`data`	`{ dividend_next: number; cost_of_equity: number; perpetual_growth: number }`	`dividend_next` is the dividend one period ahead, not the dividend just paid. `cost_of_equity` is the discount rate and `perpetual_growth` the constant growth rate applied forever. Other keys in the record are not read.

Returns#

{ state: string; method: string; dividend_timing: string; discount_growth_spread: number; capitalization_multiple: number; intrinsic_value_per_share: number }

discount_growth_spread is cost_of_equity less perpetual_growth, capitalization_multiple its reciprocal, and intrinsic_value_per_share is dividend_next divided by that spread. dividend_timing records which dividend the formula assumes.

Errors#

When data is absent, an array, or not an object — throws Error
When dividend_next is not a finite number, or is negative — throws Error
When cost_of_equity is not strictly between 0 and 1 — throws Error
When perpetual_growth is at or below -1, or at or above cost_of_equity — throws Error

Complexity: time O(1), space O(1).

Worked example#

executed Captured by running this function on the input its own test provides. Real output of real code — but not asserted against a published figure.

Input#

data

{
  "valuation_date": "2026-08-04",
  "currency": "USD",
  "dividend_next": 3.12,
  "cost_of_equity": 0.1,
  "perpetual_growth": 0.04
}

Call#

gordonGrowthModel(data)

Returns#

object with 6 fields: state, method, dividend_timing, discount_growth_spread, capitalization_multiple, intrinsic_value_per_share

{
  "state": "valued",
  "method": "gordon-growth",
  "dividend_timing": "D1-next-period",
  "discount_growth_spread": 0.060000000000000005,
  "capitalization_multiple": 16.666666666666664,
  "intrinsic_value_per_share": 52
}

Other exports#

This module also exports calculate, freeCashFlowDcf, dividendDiscountModel, residualIncomeModel, economicValueAdded. Every module additionally exports run as an alias of its primary function, and a meta object carrying its catalog id, domain, family, shape and article URL.