Model 101 is our most basic model. It is in the the spirit of "as simple as possible but no simpler." It calculates the value of an equity using:

- The book value from the most recent annual balance sheet
- An estimate for this fiscal year's earnings
- An estimate for next fiscal year's earnings
- An estimate for the annual dividend
- Your Estimate of the long-term growth rate of residual earnings
- Your required return for investing in the company

Take a look at the formula and try the model for yourself − we'll guide you at every step!

The model is based on the work of Stephen H. Penman of Columbia Business School. For an in-depth look at the theory behind it, we recommend reading Accounting for Value.

$$Value_0 = B_0 + {Earnings_1 - (r * B_0) \over (1 + r)} + {Earnings_2 - (r * (B_0 + Earnings_1 - d_1)) \over [(1 + r) * (r - g))]} $$ $$Where:$$ $$ Value_0 = Current\,Value\,of\,the\,Stock$$ $$ B_0 = Book\,Value\,from\,the\,Lastest\,Annual\,Filing$$ $$ Earnings_1 = \,Earnings\,Estimate\,for\,This\,Year$$ $$ Earnings_2 = \,Earnings\,Estimate\,for\,Next\,Year$$ $$ d_1 = Expected\,Dividend\,for\,this\,Year$$ $$ g = Long\,Term\,Growth\,Rate\,of\,Residual\,Earnings$$ |