# Grinold-Kroner Model Question

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.

as you explained, if the firm buys shares from investors, that’s like money in your pocket. Opposite case if the firm sold the shares.

negative repurchase yield means that the firm sold the shares which is your loss. I stopped caring about the +/- in the formula. If the firm purchased shares, it’s increasing my return. If they sold shares, it’s decreasing.

if they give you repurchase yield - use it as is … if they say -0.005 - use -0.005.

2009 -> Equity repurchase yield (%) –0.5 -> so -0.005

example 13 in book ->

2007 Q 10 C Share repurchase yield 1% Therefore E(Re) = 2% – (–1%) +4% + 4% + 0.25% = 11.25% so if repurchase yield is given - directly use it with the sign.

OK so it sounds like

negative repurchase yield = bad = subtract from div yield

positive repurchase yield = good = add to div yield