PVGO
Hi! Have you ever heard of a company? It's a group of people who work together to make and sell things like toys, clothes, or food. When you buy something from a company, you usually pay money for it.
Now, imagine you own a piece of this company, let's call it "Company A". That means you own a small part of the money it makes. When you own a part of a company, it's called a "stock" or a "share".
But, how can you know how much a company's stock is worth?
One way is to look at the company's profits, which is the money it earns after paying for all its expenses like salaries, materials, or rent. The more money a company earns, the more valuable its stock usually is.
So, let's say Company A makes $100,000 in profit every year. One way to estimate the value of one share of the company’s stock is by using a tool called PVGO.
"PVGO" stands for "Present Value of Growth Opportunities". It's a fancy way of saying how much the stock is worth based on how much the company is expected to grow in the future.
Let's break it down:
- "Present Value" means how much the stock is worth right now
- "Growth Opportunities" means how much the company can grow in the future.
So, the formula for PVGO is:
PVGO = (expected earnings growth rate / discount rate) * earnings per share
Woah, that looks complicated!
Don't worry, let's take it step by step:
1. "Expected earnings growth rate" is how much the company is expected to grow in the future, compared to how much it's making right now. For example, if Company A made $100,000 in profit last year, but is expected to make $150,000 in profit this year, that's a growth rate of 50%.
2. "Discount rate" is a fancy way of saying how much we expect to earn on our money in a safe investment. For example, if you have $100 and put it in a bank account, you might earn 1% interest per year. That 1% is the discount rate.
3. "Earnings per share" is the profit made by the company for each share of stock. So, if Company A made $100,000 in profit, and there are 10,000 shares of stock, each share would be worth $10 in earnings.
Now we have all the info we need to calculate PVGO!
Let's say:
- Company A is expected to grow by 10% per year
- The discount rate is 5%
- The earnings per share is $10.
Then, the PVGO would be:
PVGO = (10% / 5%) * $10 = $20
That means, the stock is worth $20 more than its current price because of the expected growth in the future.
So, if the current price of the stock is $50, the total value of the stock, including the PVGO, would be $70 ($50 + $20).
And that's how PVGO helps us estimate the value of a company's stock based on its expected growth in the future!
Now, imagine you own a piece of this company, let's call it "Company A". That means you own a small part of the money it makes. When you own a part of a company, it's called a "stock" or a "share".
But, how can you know how much a company's stock is worth?
One way is to look at the company's profits, which is the money it earns after paying for all its expenses like salaries, materials, or rent. The more money a company earns, the more valuable its stock usually is.
So, let's say Company A makes $100,000 in profit every year. One way to estimate the value of one share of the company’s stock is by using a tool called PVGO.
"PVGO" stands for "Present Value of Growth Opportunities". It's a fancy way of saying how much the stock is worth based on how much the company is expected to grow in the future.
Let's break it down:
- "Present Value" means how much the stock is worth right now
- "Growth Opportunities" means how much the company can grow in the future.
So, the formula for PVGO is:
PVGO = (expected earnings growth rate / discount rate) * earnings per share
Woah, that looks complicated!
Don't worry, let's take it step by step:
1. "Expected earnings growth rate" is how much the company is expected to grow in the future, compared to how much it's making right now. For example, if Company A made $100,000 in profit last year, but is expected to make $150,000 in profit this year, that's a growth rate of 50%.
2. "Discount rate" is a fancy way of saying how much we expect to earn on our money in a safe investment. For example, if you have $100 and put it in a bank account, you might earn 1% interest per year. That 1% is the discount rate.
3. "Earnings per share" is the profit made by the company for each share of stock. So, if Company A made $100,000 in profit, and there are 10,000 shares of stock, each share would be worth $10 in earnings.
Now we have all the info we need to calculate PVGO!
Let's say:
- Company A is expected to grow by 10% per year
- The discount rate is 5%
- The earnings per share is $10.
Then, the PVGO would be:
PVGO = (10% / 5%) * $10 = $20
That means, the stock is worth $20 more than its current price because of the expected growth in the future.
So, if the current price of the stock is $50, the total value of the stock, including the PVGO, would be $70 ($50 + $20).
And that's how PVGO helps us estimate the value of a company's stock based on its expected growth in the future!