>From _The Theory of Investment Value_, 1938 John Burr Williams http://www.cyberramp.net/~investor/theory.htm "The formulas for the investment value of common stocks given in earlier chapters would be of little use unless some way could be found to estimate the size of the dividends whose present worth it was there proposed to take. How to estimate these future dividends is the heart of the problem, and in helping to solve this problem, the present book hopes to make a significant contribution to the art of Investment Analysis. "The solution to be proposed is straightforward; it consists in making a budget showing the company's growth in assets, debt, earnings, and dividends during the years to come. This budget is not drawn up with debit and credit, however, using a journal and ledger as an accountant would do, but is put in algebraic form in a way that is altogether new to the accountant's art. "The simplifying assumptions can be set down mathematically in the form of seven constant characteristics of such a company: (i) The return on invested assets stays the same; (ii) The ratio of stocks to bonds in its capitalization stays the same; (iii) The rate of interest paid on bonded debt and other senior securities stays the same; (iv) The rate of growth of invested asses stays the same; (v) We prove that for a company with these properties until the point of slackening growth arrives, the rate of net dividend, expressed as a ratio to book value, stays the same; (vi) Since all terms on the right-hand side of these last equations are constant, according to characteristics (i) to (iii) set forth above, it follows that the rate of earnings on book value of common is also constant under these conditions. We prove the reinvestment rate, expressed as a ratio to book value, constant like the rate of earnings on book value of common; (vii) Since the growth in assets in percent per year is constant by hypothesis it follows that the reinvestment rate is also constant. Having proved that both the rate of net dividend and the reinvestment rate are constant, we can now see that the pure dividend rate, expressed as percent of book value, is also constant. We can now show that the dividends themselves follow a compound interest law till the point of inflection is reached. "Since dividends thus increase according to a compound-interest law up to the point of inflection in the company's growth, the value of its stock may be found by one of the formulas already worked out in Chapter VII, §2, which is Equation (22b)." Regards, Tom Walker ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ #408 1035 Pacific St. Vancouver, B.C. V6E 4G7 [EMAIL PROTECTED] (604) 669-3286 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ The TimeWork Web: http://www.vcn.bc.ca/timework/
