Question

In doing a company valuation what should I use for my growth rate for a pro forma forecast? I don't want to use the Gordan growth model.

Answer 1

You would want to use the sustainable growth rate (ROE x Retention Rate) because it ties the logical constraints of the model well. The other option which is a more quantitative measure would be a regression based estimate of past growth rates.

Answer 2

Yeah, never quite understood people's fascination with Gordon model. If you're using Excel and =forecast function, just be careful which line items you apply a linear regression to. If something is seeing exponential growth, you can use a logarithmic substitution