Definition of Transition phase

Transition phase

A phase of development in which the company's earnings begin to mature and decelerate to
the rate of growth of the economy as a whole. Related: three-phase DDM.

Three-phase DDM

A version of the dividend discount model which applies a different expected dividend
rate depending on a company's life-cycle phase, growth phase, transition phase, or maturity phase.

Growth phase

A phase of development in which a company experiences rapid earnings growth as it produces
new products and expands market share.

Maturity phase

A phase of company development in which earnings continue to grow at the rate of the
general economy. Related: Three-phase DDM.

steady-state phase

the point at which the learning curve becomes flat and only minimal improvements in performance are achieved

constant-growth dividend discount model

Version of the dividend discount model in which dividends grow at a constant rate.

Constant-growth model

Also called the Gordon-Shapiro model, an application of the dividend discount
model which assumes (1) a fixed growth rate for future dividends and (2) a single discount rate.

Critical Growth Periods

Times in a company's history when growth is essential and without which survival of the business might be in jeopardy.

Discounted dividend model (DDM)

A formula to estimate the intrinsic value of a firm by figuring the
present value of all expected future dividends.

Dividend discount model (DDM)

A model for valuing the common stock of a company, based on the
present value of the expected cash flows.

dividend growth method

a method of computing the cost
of common stock equity that indicates the rate of return
that common shareholders expect to earn in the form of
dividends on a company’s common stock

Dividend growth model

A model wherein dividends are assumed to be at a constant rate in perpetuity.

growth funds

Mutual funds that seek long-term capital growth. This type of fund invests primarily in equity securities.

Growth manager

A money manager who seeks to buy stocks that are typically selling at relatively high P/E
ratios due to high earnings growth, with the expectation of continued high or higher earnings growth.

Growth opportunity

Opportunity to invest in profitable projects.

growth rate

an estimate of the increase expected in dividends
(or in market value) per share of stock

Growth rates

Compound annual growth rate for the number of full fiscal years shown. If there is a negative
or zero value for the first or last year, the growth is NM (not meaningful).

Growth stock

Common stock of a company that has an opportunity to invest money and earn more than the
opportunity cost of capital.

Internal growth rate

Maximum rate a firm can expand without outside source of funding. growth generated
by cash flows retained by company.

internal growth rate

Maximum rate of growth without external financing.

Net present value of growth opportunities

A model valuing a firm in which net present value of new
investment opportunities is explicitly examined.

Present value of growth opportunities (NPV)

Net present value of investments the firm is expected to make
in the future.

present value of growth opportunities (PVGO)

Net present value of a firm’s future investments.

Simple compound growth method

A method of calculating the growth rate by relating the terminal value to
the initial value and assuming a constant percentage annual rate of growth between these two values.

Sustainable growth rate

Maximum rate of growth a firm can sustain without increasing financial leverage.

sustainable growth rate

Steady rate at which a firm can grow without changing leverage; plowback ratio × return on equity.

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