Assessing Growth Estimates in IPO Valuations—A Case Study

A common practice in discounted cash flow (DCF) valuations of growth businesses is to forecast cash flows over some initial period (say, five years) and then use a “perpetuity‐with‐growth” calculation to estimate the “terminal” value beyond that period. The assumed growth rate generally has a very large effect on the overall valuation, and there is no universally accepted method for challenging the assumptions underlying the selected growth rate. This article presents a framework based on the concept of Market Implied Competitive Advantage Period (MICAP) analysis that can be used to evaluate such growth assumptions and then demonstrates the use of that framework in the IPO valuation of Jordan Telecom.