Valuation, Value Investing

Stable Growth Rate for DCF Terminal Value

Came across this web page by Damodaran which highlighted some good points on the stable growth rate (link here):

  1. The stable growth rate cannot be greater than the overall growth rate of the economy, since if a firm grows forever at a rate higher than the growth rate of the economy, it will be bigger than the entire economy.
  2. Make sure you know whether you are choosing to use nominal growth rates or real growth rates.
  3. The stable growth rate can be negative.

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