PVGO Calculator
Calculate Present Value of Growth Opportunities to optimize dividend vs reinvestment decisions
Calculate PVGO
Current market price per share
Total annual earnings of the company
Total number of shares issued by the company
Required return rate for equity investors
PVGO Analysis Results
PVGO Formula: Share Price - (EPS ÷ Cost of Equity)
Calculation: $0.00 - ($0.00 ÷ 0%) = $0.00
PVGO Interpretation Guide
Example Calculation
Company Alpha Analysis
Share Price: $20.00
Total Earnings: $2,000,000
Shares Outstanding: 1,000,000
Cost of Equity: 12.5%
Calculation Steps
1. EPS = $2,000,000 ÷ 1,000,000 = $2.00
2. No-Growth Value = $2.00 ÷ 12.5% = $16.00
3. PVGO = $20.00 - $16.00 = $4.00
4. PVGO as % of Price = $4.00 ÷ $20.00 = 20%
Interpretation
Positive PVGO of $4.00 (20% of share price) suggests Company Alpha has moderate growth opportunities and should consider reinvesting earnings for future growth rather than distributing all as dividends.
PVGO Decision Framework
High PVGO (>25%)
Strong reinvestment potential. Focus on growth projects.
Moderate PVGO (5-25%)
Balanced approach. Consider hybrid dividend/reinvestment strategy.
Low PVGO (0-5%)
Limited growth opportunities. Consider dividend payments.
Negative PVGO
Value destruction through reinvestment. Distribute as dividends.
Key Considerations
Market price should be fairly valued for accurate PVGO
Use average share price over time for better accuracy
Consider cost of equity from CAPM or other methods
High PVGO indicates strong growth potential
Negative PVGO suggests value-destroying reinvestment
Understanding PVGO (Present Value of Growth Opportunities)
What is PVGO?
PVGO represents the value of a company's future growth opportunities. It measures how much value a company can create by investing in new projects rather than distributing earnings as dividends.
Why is PVGO Important?
- •Helps determine optimal dividend vs reinvestment strategy
- •Guides capital allocation decisions
- •Assesses company's growth potential
- •Evaluates management's investment decisions
PVGO Formula Components
PVGO = Share Price - (EPS ÷ Cost of Equity)
- Share Price: Current market price per share
- EPS: Earnings per share (Total Earnings ÷ Shares Outstanding)
- Cost of Equity: Required return rate for equity investors
- No-Growth Value: EPS ÷ Cost of Equity
Key Insight: Share price consists of two components: the value assuming no growth (current earnings capitalized at the cost of equity) and the present value of growth opportunities.
PVGO Decision Making
Positive PVGO
Company should reinvest earnings in growth projects as they generate positive value for shareholders.
Zero PVGO
No growth opportunities exist. Consider distributing earnings as dividends to shareholders.
Negative PVGO
Reinvestment destroys value. All earnings should be distributed as dividends to shareholders.