Terminal Growth Rate Calculator

What is Terminal Growth Rate? Terminal growth rate (g) is the constant long-run growth rate assumed for Free Cash Flow to Firm (FCFF) beyond the explicit forecast period in a DC...

Terminal Growth Rate (g) Calculator

Calculate the implied terminal growth rate (g) using the Gordon Growth terminal value formula. Useful for sanity-checking DCF assumptions against discount rate and cash flow inputs.

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Use the terminal value at the end of Year N (not discounted). For Gordon Growth: TV = FCFF(N+1) ÷ (r − g). If you only have PV(TV), turn on the toggle below to undiscount it back to Year N.

Turn this on if your input TV is the present value of terminal value (PV of TV) from a DCF. We will undiscount it back to the end of Year N using TV_N = PV(TV) × (1 + r)^N.

Number of years from today to the terminal year used to discount PV(TV) back to Year N.

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FCFF in the final explicit forecast year (Year N). This calculator assumes FCFF(N+1) = FCFF(N) × (1 + g).

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The required return used in Gordon Growth. Must be greater than g (r > g) for the model to be valid.

Scenarios
Compare common terminal assumptions (mature, optimistic, flat, and stressed).
Mature (Base)OptimisticFlat GrowthStressed / Declining

Results

  • Implied Terminal Growth Rate (g)— %
  • Terminal Value used (end of Year N)$
  • Implied FCFF in Year N+1$
  • Interpretation—

Enter your inputs above to calculate the results.

What is Terminal Growth Rate?

Terminal growth rate (g) is the constant long-run growth rate assumed for Free Cash Flow to Firm (FCFF) beyond the explicit forecast period in a DCF.

It matters because small changes in g can dominate Terminal Value, Enterprise Value, and value-creation narratives (ROIC vs WACC, EVA / economic profit).

Practically: it’s a “reality check” on whether your terminal assumptions imply mature, sustainable growth—and whether g stays safely below the discount rate.

Formula

TVN = (FCFFN + 1) / r-g = (FCFFN(1 + g)) / r-g
g = TVNcdot r-FCFFN / (TVN + FCFFN)

Example

Assume: Terminal Value at Year N (TV_N) = $1,000,000,000, Final Year FCFF (FCFF_N) = $50,000,000, Discount Rate (r / WACC) = 9%.

1) Compute implied terminal growth rate: g = (1,000,000,000 × 0.09-50,000,000) / (1,000,000,000 + 50,000,000) = 0.0381 = 3.81%
2) Compute implied next-year FCFF checkpoint: FCFFN + 1 = FCFFN(1 + g) = 50,000,000(1.0381) = 51,904,762

Frequently Asked Questions

I have a Terminal Value (TV) number—how do I back-solve the implied perpetual growth rate (g)?

Enter TV, FCFF in Year N, and your discount rate (WACC). The calculator solves for the single growth rate that makes your TV consistent with a Gordon-growth terminal value.

My implied terminal growth rate is negative (or extremely high). Is that “wrong”?

Not automatically. Negative g can be valid for shrinking/declining businesses. Extremely high g usually means your TV is too large relative to FCFF and WACC, or you accidentally used a discounted TV without toggling “TV is already discounted.”

What if my terminal value is already discounted to present value (PV of TV)?

Turn on “My TV is already discounted (PV of TV)” so the calculator treats your input as PV instead of TV at Year N. If you leave it off, you’ll usually overstate the implied growth rate.

What’s a “reasonable” terminal growth rate for a mature company or market?

In most mature-market DCFs, g is typically a low single-digit nominal assumption (often in the ~2%–4% ballpark). If your implied g is far outside that range, treat it as a red flag and revisit TV, FCFF normalization, and WACC.

Sources & Methodology