In corporate finance,[1]
[2]
[3] the present value of growth opportunities (PVGO) is a valuation measure applied to growth stocks.
It represents the component of the company's stock value that corresponds to (expected) growth in earnings.
It thus allows an analyst to assess the extent to which the share price represents the current business, and to what extent it reflects assumptions about the future.
As a proportion of market cap, PVGO can then also be used in relative valuation, i.e. when comparing between two investments (see similar re PEG ratio).
PVGO is calculated as follows:
- PVGO = share price − earnings per share ÷ cost of capital.
This formula arises by thinking of the value of a company as inhering two components:
(i) the present value of existing earnings, i.e. the company continuing as if under a "no-growth policy";
and (ii) the present value of the company's growth opportunities.
PVGO can then simply be calculated as the difference between the stock price and the present value of its zero-growth-earnings;
the latter, the second term in the formula above, uses the calculation for a perpetuity (see Dividend discount model § Some properties of the model).
References
- ↑ Will Kenton (2020). Net Present Value of Growth Opportunities, investopedia.com
- ↑ Brealey and Meyers (2020). Principles of Corporate Finance, 13th Edition - Chapter 4, "The Value of Common Stocks"
- ↑ Alex Stomper (N.D.) Finance Theory I, MIT OpenCourseWare
Financial ratios |
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- Cyclically adjusted price-to-earnings (CAPE)
- Capitalization rate (Cap Rate)
- Cash return on cash invested (CROCI)
- Debt-to-equity (D/E)
- Dividend cover
- Dividend payout
- Enterprise value/EBITDA (EV/EBITDA)
- Enterprise value/gross cash invested (EV/GCI)
- Enterprise value/sales (EV/Sales)
- Loan-to-value (LTV)
- Omega
- Operating margin
- Price-to-book (P/B)
- Price/cash flow (P/CF)
- Price-earnings (P/E)
- Price-earnings to growth (PEG)
- Price-sales (P/S)
- Profit margin
- Return on assets (ROA)
- Return on net assets (RONA)
- Return on capital (ROC)
- Return on capital employed (ROCE)
- Return on equity (ROE)
- Return on tangible equity (ROTE)
- Risk-adjusted return on capital (RAROC)
- Risk return (RRR)
- Sharpe
- Short interest (SIR)
- Sortino
- Sustainable growth (SGR)
- Treynor
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Corporate finance and investment banking |
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| Capital structure |
- Convertible debt
- Exchangeable debt
- Mezzanine debt
- Pari passu
- Preferred equity
- Second lien debt
- Senior debt
- Senior secured debt
- Shareholder loan
- Stock
- Subordinated debt
- Warrant
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Transactions
(terms/conditions) | | Equity offerings |
- At-the-market offering
- Book building
- Bookrunner
- Bought deal
- Bought out deal
- Corporate spin-off
- Equity carve-out
- Follow-on offering
- Greenshoe
- Initial public offering
- Private placement
- Public offering
- Rights issue
- Seasoned equity offering
- Secondary market offering
- Underwriting
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Mergers and
acquisitions |
- Buy side
- Control premium
- Demerger
- Divestment
- Drag-along right
- Management due diligence
- Managerial entrenchment
- Minority discount
- Pitch book
- Pre-emption right
- Proxy fight
- Post-merger integration
- Sell side
- Shareholder rights plan
- Special-purpose entity
- Special situation
- Squeeze-out
- Staggered board of directors
- Stock swap
- Super-majority amendment
- Tag-along right
- Takeover
- Tender offer
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| Leverage |
- Debt restructuring
- Debtor-in-possession financing
- Financial sponsor
- Leveraged buyout
- Leveraged recapitalization
- High-yield debt
- Private equity
- Project finance
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| Valuation |
- Accretion/dilution analysis
- Adjusted present value
- Associate company
- Business valuation
- Conglomerate discount
- Cost of capital
- Discounted cash flow
- Economic value added
- Enterprise value
- Fairness opinion
- Financial modeling
- Free cash flow
- Market value added
- Minority interest
- Modigliani–Miller theorem
- Net present value
- Pure play
- Real options
- Residual income
- Stock valuation
- Sum-of-the-parts analysis
- Tax shield
- Terminal value
- Valuation using multiples
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 List of investment banks- Outline of finance
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 | Original source: https://en.wikipedia.org/wiki/Present value of growth opportunities. Read more |
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