TY - JOUR T1 - Firm Valuation with Long-Run Business Cycles JF - The Journal of Private Equity SP - 86 LP - 95 DO - 10.3905/jpe.2011.14.3.086 VL - 14 IS - 3 AU - Tom Arnold AU - David S. North Y1 - 2011/05/31 UR - https://pm-research.com/content/14/3/86.abstract N2 - Pro forma analysis is often performed with the idea that a firm’s cash flows are cyclic. Yet, after forecasting cash flows following a cyclic pattern, the remaining cash flows are calculated using a constant growth perpetuity calculation as a “terminal value.” Such a calculation for the terminal value is inconsistent with the nature of cyclic cash flows that do not grow at a constant rate. In this article, a method is developed for calculating the terminal value that incorporates the cyclic nature of cash flows into perpetuity. The method is easily incorporated into a “closed-form” valuation technique in Excel that is very amenable to Excel’s data table and “spinner” features, as well as Monte Carlo software packages for extensive sensitivity analysis.TOPICS: Private equity, fundamental equity analysis, statistical methods ER -