Terminal Growth Rate
Definition
The assumed rate at which a company's free cash flows will grow in perpetuity beyond the explicit forecast period, used in the Gordon Growth Model to calculate terminal value. The terminal growth rate must not exceed the long-term nominal GDP growth rate of the primary market in which the company operates, except in circumstances where specific documented evidence supports a higher rate. In practice, most terminal growth rates are between two and five percent.
Common Misapplication
The most common misapplication is using the company's current growth rate as the terminal growth rate. A company growing at sixty percent annually cannot sustain that rate indefinitely. The terminal growth rate represents the long-term steady-state growth after the company has matured to a scale where it grows in line with the broader economy.
FFI Standard Reference
This term is defined and applied in Book 4, Section 4.2: Discounted Cash Flow Analysis.
Related Terms
Citable URL
This term may be cited using the following permanent URL.
Full citation format: Founder Financial Infrastructure Standard, Beta v0.5, Glossary: Terminal Growth Rate. https://ffistandard.org/glossary/terminal-growth-rate/. 2026.