Gordon Growth Model

The model's usefulness lies less in the value it produces than in what it reveals about sensitivity: because the denominator is a difference between two similar numbers, a one-point change in either input moves the answer enormously. It requires growth to be permanently below the required return, and it breaks entirely if that condition fails. The same arithmetic underlies terminal value in a DCF, which is why terminal assumptions carry so much weight. Its constant-growth assumption is never literally true, so it suits mature businesses and long-run terminal periods rather than companies in transition.