How to Estimate Growth Rate (g): Historical vs Retention Ratio Method/Cost of Capital Part 2

Описание: ​How to Estimate Growth Rate (g): Historical vs Retention Ratio Method | Cost of Capital Part 2
​In this video, we dive deep into the second part of our Cost of Capital series to answer a critical question in finance: How do we accurately estimate the Growth Rate (g)? Whether you are calculating the Weighted Average Cost of Capital (WACC) or performing a Stock Valuation using the Dividend Discount Model (DDM), the growth rate is the most sensitive variable in your formula.
​We break down the three most common approaches used by analysts and students alike:
​The Historical Growth Method: Analyzing past Dividends and EPS to predict future trends.
​The Retention Ratio Method: Also known as the Fundamental Growth or Sustainable Growth Rate, calculated as g = \text{Retention Ratio} \times \text{ROE}.
​Analyst Forecasts: How to utilize EPS growth projections.
​By the end of this tutorial, you will know exactly which method to use for different types of companies and how to avoid common pitfalls in growth estimation.
​🕒 Timestamps (Chapters)
​0:00 - Introduction to Growth Rate (g)
1:30 - Why g Matters for Cost of Capital & WACC
3:15 - Method 1: Historical Growth Rate Analysis
5:45 - How to Calculate Compound Annual Growth Rate (CAGR)
8:10 - Method 2: The Retention Ratio (Fundamental) Method
10:30 - Understanding the Plowback Ratio & ROE
13:00 - Method 3: Estimating Growth via EPS & Analyst Forecasts
15:45 - Choosing the Best Method: Historical vs. Fundamental
18:00 - Summary & What’s Next in Cost of Capital Part 3
​📈 Key Topics Covered:
​How to find the growth rate for the Gordon Growth Model.
​The relationship between Earnings Per Share (EPS) and dividends.
​Calculating the Retention Ratio from the Dividend Payout Ratio.
​The impact of Return on Equity (ROE) on sustainable growth.
​🎓 About This Series
​This video is part of our comprehensive Cost of Capital Masterclass. To get the most out of this lesson, make sure you have watched Part 1 (Introduction to WACC) and stay tuned for Part 3 where we cover the Cost of Debt.
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