Present Value of Growth Opportunities Template
Present Value of Growth Opportunities Template
This present value of growth opportunities template shows you how to calculate the PVGO given the market price of stock, required rate of return, and expected earnings.
This is what the PVGO template looks like:
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PVGO Template
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Present Value of Growth Opportunities (PVGO) is a concept that gives analysts a different approach to equity valuation. Considering that valuation in stock markets is a combination of fundamentals and expectations, we can break down the value of a stock to the sum of (i) its value assuming no earnings reinvested and (ii) the present value of growth opportunities.
PVGO Formula
We can write it down in the following form:
Value of stock = value no growth + present value of GO
or we can restate as:
PVGO = Value of stock – value no growth and PVGO = Value of stock – (earnings / cost of equity)
This approach uses the assumption that companies should distribute earnings among shareholders if no better use for it can be found, such as investing in positive Net Present Value (NPV) projects.
We can call the scenario in which a company has no positive NPV projects as a no-growth scenario, and formulate the following:
Value no growth = div / (required return on equity – growth)
where dividends represent 100% of earnings, making div = earnings for this assumption, and growth = 0.
Therefore, we can rewrite the formula as:
Value no growth = earnings / required return on equity
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Additional Resources
CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:
The Financial Modeling Certification
Analyst Certification FMVA® Program
CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:
The Financial Modeling Certification
Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.
A well rounded financial analyst possesses all of the above skills!
Additional Questions & Answers
CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.
In order to become a great financial analyst, here are some more questions and answers for you to discover:
- What is Financial Modeling?
- How Do You Build a DCF Model?
- What is Sensitivity Analysis?
- How Do You Value a Business?
Excel Tutorial
CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:
The Financial Modeling Certification
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