Explain how spreadsheet models are used to project dividends and value common shares
The idea
Spreadsheet modelling forecasts each year's dividend, or the earnings and payout behind it, individually, so growth, margins, payout and even the required return can change year by year. The analyst builds the forecast from line items, adds a terminal value at the horizon and discounts everything to today. The benefit is flexibility: the model can follow whatever path the company's life cycle suggests, and it makes sensitivity testing of each assumption easy. The cost is that a model with many inputs can look precise while resting on guesses, and formula errors are easy to miss. It still needs a terminal value, which often dominates the result. The trap is equating a detailed model with an accurate one.
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