# Gordon Growth Model

`D18-F02-A03` · Fundamental Analysis and Valuation → Intrinsic Valuation · archetype `record-transform` · difficulty 3/5 · verification **verified**

Full page: https://docs.thefintechbuilder.com/fundamental-analysis-and-valuation/intrinsic-valuation/gordon-growth-model/
Agent skill: `npx skills add IslamBaraka90/Fintech-Algorithms-Library` — https://docs.thefintechbuilder.com/guides/agent-skill/

## Install and import

```bash
npm install fintech-algorithms
```

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

## Signature

```ts
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 | Required | Notes |
| --- | --- | --- | --- |
| `data` | `{ dividend_next: number; cost_of_equity: number; perpetual_growth: number }` | yes | `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

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`:

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

### Call

```ts
gordonGrowthModel(data)
```

### Returns

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

```json
{
  "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

`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.

## Verification and provenance

Tier: **verified** (via D).

The worked example below is the figure published in this algorithm's article, replayed and asserted by the test suite on every build. The arithmetic cannot drift without the build failing.

Both tiers guarantee the signature. Full explanation: https://docs.thefintechbuilder.com/guides/verification/

Generated from the docs.json payload shipped inside fintech-algorithms@0.13.0.
The signature and parameter list are checked against the compiled implementation at build time,
so a description that contradicts the code fails the build rather than reaching this file.

## Links

- Article (how it works, step by step): https://thefintechbuilder.com/fundamental-analysis-and-valuation/intrinsic-valuation/gordon-growth-model/
- Implementation source: https://github.com/IslamBaraka90/Fintech-Algorithms-Library/blob/main/src/fundamental-analysis-and-valuation/intrinsic-valuation/gordon-growth-model/impl.ts
- Package on npm: https://www.npmjs.com/package/fintech-algorithms
- Domain index for agents: https://docs.thefintechbuilder.com/fundamental-analysis-and-valuation/llms.txt