Module II· DCF — Mechanics & FCFBasic
Question
How long should the explicit forecast period in a DCF be?
Answer
Standard
5–10 years.
Rule of thumb
long enough to reach a steady state in the terminal year.
- Mature middle-market companies: 5 years is enough
- Growth companies: 7–10 years (margins and capex normalize later)
Reality
Terminal Value makes up 60–80% of the EV — no matter how long the explicit period is.