# T-Model - The Cash-flow T-model

The Cash-flow T-model

In 2003 Estep published a version of the T-model that does not rely on estimates of return on equity, but rather is driven by cash items: cash flow from the income statement, and asset and liability accounts from the balance sheet. The cash-flow T-model is:

$mathit T = frac {mathit CF}{mathit P} + boldsymbol {Phi} g + frac{Delta PB}{PB} mathit(1 + g)$

where

and

$boldsymbol {Phi} = frac{mathit MktCap - gross assets + total liabilities}{mathit MktCap}$

He provided a proof that this model is mathematically identical to the original T-model, and gives identical results under certain simplifying assumptions about the accounting used. In practice, when used as a practical forecasting tool it may be preferable to the standard T-model, because the specific accounting items used as input values are generally more robust (that is, less susceptible to variation due to differences in accounting methods), hence possibly easier to estimate.