How to Reverse Engineer a Company's Share Price

This video shows how to reverse engineer a company's share price using "Goal Seek" in Microsoft Excel. To "reverse engineer" a company's share price means to back out assumptions made by investors about the company's forecasted cash flows, growth rate, or cost of capital.
For example, let's assume that you estimate the intrinsic per-share value of a company's equity using the Gordon Growth Model. The Gordon Growth Model calculates a company's share as follows:
forecasted dividends per share / (cost of equity - growth rate) = share price
Let's assume that you are confident about the forecasted dividends per share and cost of equity for a company. If you also know the company's actual share price, you then know three of the four things in the equation above and can solve for the growth rate. Doing so will tell you the amount by which investors are implicitly expecting the company's dividends per share to grow each year given the current stock price.
Alternatively, if you're confident about the company's cost of equity and expected growth rate, and you can observe the company's actual share price, you can back out the amount of dividends per share that investors must be forecasting given the current stock price.
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[@mokh4222]

well explained even though it is very tough topic .
I got same this question when I did CMA P2 EXAM .
thank you professor .

[@Edspira]

Thank you! That's interesting to hear that this was tested on the CMA exam

[@TaxTimeForever]

Thanks for another great explainer man

[@Edspira]

No problem 👍