Implication of this 3D diagram

[WolverineHK]

Guys, could you please show me the implication of the 3D diagram attached in the post? I have difficulties in understanding 3 dimensional diagram. What I got from the picture at the moment is the company value is more sensitive to short term growth rate rather than discount rate, I couldn't get any else. Especially I can't understand the surface, and those color implies what? So please help! =)

thank in advance.

All the best,
Kenneth

 

[Technically Fundamental]

Looks like colour helps to comprehend the gradient or rate of growth as its a curve.

Looks to me like its saying the company value will increase exponentially if there is high short term growth in a period of low discount rates.

 

[WolverineHK]

yeah, thanks, makes perfectly sense, anything else? could this help to determine a fair discount rate and growth rate for valuing a company, u know, using DCF

 

[Technically Fundamental]

Not sure mate. If that a discount rate represents a rate issued by a central bank as I'm assuming then I could see a use as a model or part of a model (as it's possibly a bit too black & white) for looking at analysing real share price performance. That's under the assumption that everything is factored in. Whether this would something that someone in your line of work could use for forecasting is not something I could answer.

 

[WolverineHK]

OK, Gotcha, thanks so much!!!

 

[kaciara]

it explains why fed & boe keep low rates when markets fall...

 

[Technically Fundamental]

I think the graph is more a model/representation of how low rates potentially filter down rather than the direct affect

Low rates >>> low returns on saving >>> more interest in stoks
\
\
>>> institutional lending >>> favourable economic activity

 

[Atilla]

Guys, could you please show me the implication of the 3D diagram attached in the post? I have difficulties in understanding 3 dimensional diagram. What I got from the picture at the moment is the company value is more sensitive to short term growth rate rather than discount rate, I couldn't get any else. Especially I can't understand the surface, and those color implies what? So please help! =)

thank in advance.

All the best,
Kenneth

1. Positive relationship between Company Value & Short Term Growth Rate (stands to reason as quicker company grows in the short term higher the company value...)

2. Negative relationship between Discount Rate & Short Term Growth Rate (higher interest rates make ROI take longer to mature - stands to reason fairly logical)

3. Negative relationship between Discount Rate & Company Value. Most companies don't have cash piles of deposit and high rates discourage spending and postpone purchase decisions. Low rates bring purchase decisions forward. Hence reflected in company sales and earnings value.


imho not a good graph.

Take it to 2 D diagram and reflect on relationship. You can then plot your situ in 3D world.

Also note - Discount rate axis is reversed from point zer0... Makes the diagram visibily easy to recognise but harder to read.

Waste of time to make 3 simple points. Shoot the messenger.