Sustainable growth is one of the key inputs in the income approach. I have seen wide variation in practice over time with respect to selection of a sustainable growth rate ranging from long-term targets for inflation, expected industry growth rates, T-Bond yields and expected growth of the Gross Domestic Product. This list is clearly not exhaustive; I have seen many different variations with high growth companies. Shannon Pratt illustrated the significance of the long-term growth rate in the following passage from Valuing a Business:
As the example illustrates, minor differences in sustainable growth rates can have very significant impacts on an opinion of value. This issue contains two papers that directly address the issue of sustainable growth. Dr. Gene Trevino analyzes the issue from the standpoint of the accuracy of using historical industry growth rates, historical gross domestic product growth rates and expected inflation rates as sustainable long-term growth...
