function calculateImpliedGrowth() {
var price = parseFloat(document.getElementById('stockPrice').value);
var cf = parseFloat(document.getElementById('cashFlow').value);
var r = parseFloat(document.getElementById('discountRate').value) / 100;
var resultArea = document.getElementById('resultArea');
var growthResult = document.getElementById('growthResult');
var analysisText = document.getElementById('analysisText');
if (isNaN(price) || isNaN(cf) || isNaN(r) || price <= 0 || r P(r – g) = CF -> r – g = CF / P -> g = r – (CF / P)
var g = r – (cf / price);
var gPercentage = g * 100;
resultArea.style.display = 'block';
growthResult.innerHTML = gPercentage.toFixed(2) + "%";
var analysis = "";
if (gPercentage > 5) {
analysis = "Analysis: This implied growth rate is quite high. Markets typically assume long-term perpetual growth rates close to the GDP growth (2-4%). If you believe the company cannot sustain this, the stock may be overvalued.";
} else if (gPercentage < 0) {
analysis = "Analysis: The implied growth rate is negative. This suggests the market expects the company's cash flows to decline over time, or the current price is significantly undervalued relative to its cost of capital.";
} else {
analysis = "Analysis: This growth rate (0-5%) is within the typical range for mature companies. It aligns closely with long-term economic growth expectations.";
}
analysisText.innerHTML = analysis;
}
Understanding the Implied Growth Rate
The Implied Growth Rate is a powerful reverse-engineering tool used in stock valuation. Instead of guessing how fast a company will grow, this calculator tells you what growth rate the market is already "baking into" the current stock price.
The Formula
g = r – (CF / P)
g: Implied Growth Rate
r: Required Rate of Return (Cost of Equity)
CF: Next year's expected Cash Flow or Dividend per share
P: Current Market Price of the stock
Practical Example
Imagine a stock trading at $100. You expect it to pay a $3.00 dividend next year. You require an 8% annual return to justify the risk. Using the calculator:
g = 0.08 – (3 / 100)
g = 0.08 – 0.03 = 0.05 or 5%
If you believe the company will grow faster than 5%, the stock is a "buy." If you think 5% is unrealistic for the long term, the stock might be "expensive."
Why Use This Calculator?
1. Avoid Overpaying: It highlights when market optimism has pushed a stock price to a level that requires impossible growth.
2. Sanity Check: Compare the result against historical growth rates. If a company historically grew at 2% but the price implies 10%, you have identified a risk.
3. Valuation Shortcut: It bypasses complex multi-stage DCF models to give you a quick "back of the envelope" sentiment check.