Present Value of Growth Opportunities Calculator


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Calculate the value of the company's growth opportunities with Calcoposis.

This calculator lets you calculate the present value of the growth opportunities of a company (PVGO). This metric allows you to evaluate the investment potential of the business.

This article will explain the PVGO, how it can help you make better decisions, and its advantages and limitations.

What is PVGO?

PVGO stands for Present Value of Growth Opportunities, the value of a company's future growth. 

PVGO indicates how much value the company can generate from reinvesting profits into new projects.

How to calculate PVGO?

The calculation of PVGO is simple. You only need to gather all the necessary variables, luckily all of them are publicly available, and put them into the formula below or to our PVGO calculator.

PVGO formula

The PVGO formula used by our calculator is derived directly from the market share price formula, which states that the company's value is equal to the sum of the present value of its no-growth profits and the present value of growth opportunities.

PVGO = Stock Price - EPS/CoE

Where:

  • Stock Price - the current price of a single stock
  • EPS - earnings per share
  • CoE - the cost of equity

 

How can this metric help you make better financial decisions?

PVGO gives a straight answer to whether the company should reinvest the earnings or payout dividends.

The logic behind this assumes that the purpose of the company's existence is to build wealth for its shareholders. Because of that, if the company can generate more value for its owners, it should reinvest the profits. Otherwise, the earnings should be redistributed to the shareholders.

The decision depends on the PVGO value:

  • For positive PVGO, investments in future growth can generate more value for the owners.
  • For negative PVGO, the company could not generate additional value for the shareholders. Therefore, it should redistribute the profits.

PVGO as a method of a company valuation.

The methodology behind the PVGO states that the company's value is derived from its fundamentals and market expectations about the company's potential. It applies in particular to growth companies. 

By calculating PVGO value, an investor can tell if the current stock price is undervalued. 

The advantages of the PVGO method.

The key benefit of the PVGO methodology is the straight answer it gives. It allows basing the business decisions on numbers, not intuition. 

Calculation of PVGO allows for quickly identifying stocks with the highest growth potential.

Similar metrics

Calcopolis provides many other tools to help you make better investment decisions. Check out our ROE calculator if you plan to use PVGO as guidance for return on equity optimization. It will help you track the current value of ROE.

To determine the cost of equity, you may use our WACC calculator.

If you wish to find alternative methods for company valuation, visit our enterprise value calculator or EBITDA Multiple Calculator.


Authors

Created by Lucas Krysiak on 2022-09-20 17:57:36 | Last review by Mike Kozminsky on 2022-09-27 10:25:03

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