Is Expected Inflation the Best Long-term Sustainable Growth Rate?

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American Society of Appraisers Business Valuation Review™
Fall 2022 Volume 41, Issue 3 pp. 84-90
Gene A. Trevino, PhD, ASA
valuation methods & approaches
income approach, growth rate


When using the income approach to value a business, selecting a sustainable long-term growth rate is a necessary input into the valuation model, one that can have a material effect on the value of the business. The business valuation literature has provided little guidance for estimating and understanding sustainable long-term growth rates. Apart from relying on macroeconomic indicators and historical industry averages, appraisers have few options for selecting sustainable long-term growth rates and are often relegated to making arbitrary assumptions. The objective of this article is to examine the accuracy of using historical industry average growth rates, historical average gross domestic product growth rates, and expected inflation as sustainable long-term growth rates. The accuracy of the forecasts was examined vis-à-vis actual growth rates for twenty-one selected industries from 1991 to 2021 for the purpose of selecting the most accurate forecasting method. The forecasts premised on expected inflation proved to be the most accurate. In light of the results, the notion that expected inflation may be the best estimate of sustainable long-term growth was explored.
Is Expected Inflation the Best Long-term Sustainable Growth Rate?
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