The Daily Technical #105: What are the major drawbacks of the dividend discount model (DDM)?

Good morning. Welcome to the 105th edition of The Daily Technical. You’re here for one reason so let’s dive in.

First time reading? Sign up here.

OVERVIEW OF YESTERDAY’S QUESTION
What is the primary purpose of US GAAP?

In the US, the Securities and Exchange Commission ("SEC") authorizes the Financial Accounting Standards Board ("FASB") to determine the set of accounting rules followed by publicly traded companies.

Under FASB, financial statements are required to be prepared in accordance with US Generally Accepted Accounting Principles ("US GAAP").

Through the standardization of financial reporting and ensuring all financials are presented on a fair, consistent basis the interests of investors and lenders are protected.

Common Mistakes

1. Mixing up the roles of the SEC and FASB while discussing US GAAP. Remember, the SEC authorizes the FASB to establish these standards, so be clear about their separate functions.

2. Forgetting to stress that US GAAP primarily applies to publicly traded companies. Highlight that while it impacts all relevant businesses, its focus on public companies ensures transparency in markets.

TL;DR

• US GAAP standardizes financial reporting for public companies.

• FASB, authorized by the SEC, sets these accounting rules.

• Financial statements must adhere to US GAAP for consistency and fairness.

• Standardization protects investors and lenders, ensuring reliable financial disclosures.

TODAY’S QUESTION
What are the major drawbacks of the dividend discount model (DDM)?

Type your answer here. Within 60 seconds you’ll have custom feedback in your inbox.

THAT’S A WRAP
Before You Go: Here’s How We Can Help!

Jobs: we’re tracking all open jobs for the classes of 2025 - 2028. Our list is updated daily. Check them out here

Mentorship: if you’re looking for 1:1 career mentorship, reply to this email to book a free discovery call.

See you tomorrow,

Mike Lukasevicz
Founder @ HirePrep