Also called Terminal growth

Perpetual growth

The rate the company is assumed to grow at forever, once the explicit horizon ends. It feeds the Gordon-growth terminal value and cannot sensibly exceed the economy's long-run growth.

Updated 2026-09-03

Perpetual growth is the rate the company is assumed to grow at forever, once the explicit projection ends. It feeds the Gordon-growth terminal value, and because that terminal is usually most of the valuation, this small number carries an outsized share of the answer.

There is a hard logical ceiling on it. A company growing faster than the economy forever eventually becomes the entire economy. So the rate has to sit at or below long-run nominal GDP growth, which is roughly 2 to 3 percent in a developed market. Angie uses 1.5 percent for energy up to 3 percent for technology and communications.

Why it is so sensitive

The Gordon formula divides by the gap between the discount rate and this number. As the gap narrows, the result runs away. At a 7 percent discount rate, moving perpetual growth from 2 percent to 3 percent does not raise the terminal by a seventh. It raises it by a quarter, because the divisor fell from 5 points to 4.

This is why Angie floors that gap at 4 points regardless of what the two inputs say, capping the implied terminal near 25 times final-year cash flow. Without it, a telecom discounted at 5.1 percent with 3 percent perpetual growth implies a terminal worth 49 times its final year.

See also

  • Terminal value — Everything the business is worth beyond the projection horizon, set by Gordon growth or an exit multiple and then discounted back. It is usually the majority of the answer.
  • Terminal method — How value beyond the horizon is set: Gordon growth, which assumes cash flow grows forever at a fixed rate, or a multiple applied to the final year.
  • Growth rate — Year-one growth, faded toward the perpetual rate across the horizon. Left blank it comes from the company's own history, capped at the sector ceiling, and a genuine decline is kept rather than floored up.
  • WACC — Cost of equity and cost of debt blended by how much of each the company uses. This is the rate every future dollar is discounted at, and it is the single most leveraged input in the model.

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Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.

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