Valuation of ordinary shares is more complicated than valuation of bonds and preference shares because of:
- Uncertainty of dividend unlike interest charges and preference dividends which are certain
- The data for valuation of ordinary shares is historical which may not reflect future expectations.
- A constant stream of dividends per share is assume
- The growth rate is assumed constant and is computed from past dividends.
- The cost of equity/required rate of return on equity is assumed to be constant though it changes over time.