Terminal Growth Rate

The perpetual growth rate applied after the explicit forecast in a DCF. It cannot exceed long-run nominal GDP growth, because a company growing faster than the economy forever eventually becomes the economy. In practice: forecast real GDP growth plus forecast inflation is the ceiling to argue against. A terminal value that is more than about three-quarters of enterprise value is a sign the assumptions need re-examining.

Where Terminal Growth Rate comes up

How to Build a DCF Model: Build Order, Terminal Value and the Sanity ChecksA DCF is 70% terminal value and 100% assumptions. Build it so both can be defended.Read the guide — 12 min DCF Interview Questions: The Ones That Actually Come UpFrom "walk me through a DCF" to the follow-ups that catch people who only memorised the steps.Read the guide — 8 min How to Review a Financial Model Before It Leaves Your DeskReading through a model looking for what seems wrong is not a review. This is what one actually looks like.Read the guide — 11 min

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DCF interview questions guide

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