Fundamental Glossary / Valuation Methods
Perpetual Growth Rate
The constant rate at which cash flows are assumed to grow after the explicit forecast, forever.
Formula
Used in terminal value = cash flow next year / (WACC - perpetual growth rate). The rate must be below the discount rate.
What it means
This is the g in the Gordon formula and in the DCF terminal value. It is a claim about the far future, so it should be modest: often around long-run nominal GDP growth, or less, for a single firm.
Because it lasts forever, a 1 percentage point change changes value more than a 1 percentage point change in next year's margin.
How to read it
Set it from inflation plus a small real growth, or from nominal GDP, and then ask if this particular firm can really hold share forever. Most cannot grow at GDP forever without the reinvestment the formula also implies.
What to watch
A growth rate close to the discount rate makes the denominator tiny and the value enormous. That result is a broken assumption, not a bargain you discovered.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.