Does anyone have an easy method to remember the “change in shares outstanding” portion of the GK model?
GK Model = Div Yield – (chng shares outstanding) + i + g + chng P/E or
income return + earnings growth + repricing return
I understand the concept of a change (reduction) in shares outstanding increasing the growth rate, but always seem to fall into the institute’s trap and flipping the sign (subtracting instead of adding or vice versa) in the calculation.
Specifically problem 5 in the 2009 Morning Session is a good example. It has dividend yield of .04 + equity repurchase yield of -.005 for an “income return” of .035.
Other places I remember it being presented differently and adding the change in shares instead.