What is one key benefit of using the Gordon Growth Model in DCF analyses?

One key benefit of using the Gordon Growth Model in discounted cash flow (DCF) analyses is that it utilizes a straightforward formula for calculating terminal value. The Gordon Growth Model, also known as the Dividend Discount Model (DDM), assumes that dividends will grow at a constant rate indefinitely. This simplicity allows analysts to derive a terminal value based on expected future cash flows, adjusted for a perpetual growth rate. The formula involves only a few inputs, making it easy to apply and understand, which is particularly advantageous in scenarios where detailed projections might be challenging to make.

Moreover, the model helps streamline the valuation process by converting complex future cash flows into a single present value figure, which can significantly enhance the efficiency of the analysis. This straightforward approach is particularly useful when analysts want to focus on long-term valuations without getting bogged down by detailed year-by-year cash flow forecasts.