Intermediate Accounting When Conducting Business Essay

Earning Growth Model

This third method considers primarily the increase in organizational earnings and the decision to purchase a stock is pegged to increases in organizational incomes. Valuation through this method is generally less challenging than the previous two models and often extremely practical.

It commences with the estimations of future earnings, based on relevant and viable information about the expected trend in the future of the assessed company -- the growth rates can be either constant either variable, and this does not impact the valuation method nor the outcomes, as long as they are reliable. The most useful and relevant means of setting the growth estimations is given by the usage of past growth rates and trends. Finally, the future earnings are discounted with the expected return on investment (ROI).The relevance and utility of this model is given by the fact that it reveals the price of the stock in direct relationship with the projected earnings (Anuar).

Based on the presentation of these three valuation methods, one can come to the conclusion that the easiest to implement and the one which reveals the most utility and should be implemented by the contemporaneous manager is the earning growth model.

References:

Anuar, Z., Stock Valuation Model -- 3 Simple Techniques to Value Stock, Enzine Articles, http://ezinearticles.com/?Stock-Valuation-Model-3-Simple-Techniques-to-Value-Stock&id=872014 last accessed on August 25, 2009

2009, Investopedia Website, http://www.investopedia.com last accessed on August 24, 2009

Days Sales in Receivable, ABREMA, http://www.abrema.net/abrema/days_sales_rec_g.html last accessed on….....