Module VI· DCF Model BuildAdvanced
Question

How do you model a three-stage DCF with a fade phase?

Answer

Stage 1 is explicit high-visibility forecast. Stage 2 is fade period where growth, margins, ROIC, capex, and working capital gradually move toward normalized levels. Stage 3 is terminal value. Use fade formulas that transition from high growth to stable long-term assumptions, avoiding an abrupt jump into terminal year.