PT - JOURNAL ARTICLE AU - Tom Arnold AU - David S. North TI - Firm Valuation with Long-Run Business Cycles AID - 10.3905/jpe.2011.14.3.086 DP - 2011 May 31 TA - The Journal of Private Equity PG - 86--95 VI - 14 IP - 3 4099 - https://pm-research.com/content/14/3/86.short 4100 - https://pm-research.com/content/14/3/86.full AB - 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