Using the Residual-Income Stock Price Valuation Model to Teach and Learn Ratio Analysis

Posted: 21 Jan 2001

See all articles by Robert F. Halsey

Robert F. Halsey

Babson College - Accounting and Law Division

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Abstract

This article provides an overview of the residual-income stock price valuation model and demonstrates its use in interpreting the DuPont return on equity (ROE) decomposition. The model provides theoretical support for the DuPont model's focus on ROE and aids in understanding the implications of the price-to-book and price-earnings ratios. I conclude with an application of the model in the valuation of Nordstrom, Inc.

Keywords: Residual income; Dupont; Ratio analysis; Ohlson

JEL Classification: M41, G12

Suggested Citation

Halsey, Robert F., Using the Residual-Income Stock Price Valuation Model to Teach and Learn Ratio Analysis. Issues in Accounting Education, May 2001. Available at SSRN: https://ssrn.com/abstract=256596

Robert F. Halsey (Contact Author)

Babson College - Accounting and Law Division ( email )

Babson Park, MA 02157
United States
781-239-4347 (Phone)
781-239-5230 (Fax)

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