From the Editor

Abstract

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 rates, while Dr. Brad Cornell and Richard Gerger approach the topic by analyzing historic growth of public companies. Their findings are surprisingly similar.David Neuzil and Joe Thompson revisit the Value Driver Formula and illustrate short-comings of a traditional Gordon Growth Model in valuing a business that invest heavily in research and development.Finally, the issue has a Special Report from the International Valuation Standard Council (“IVSC”) on Environmental, Social and Governance (“ESG”) issues in valuation. The IVSC has been busy developing technical resources for valuation professional in the evolving area of ESG and its application in business valuation. The Special Report provides an overview of those resources and ongoing work in the area.To all our readers, enjoy the issue and let me know if you have any strong opinion or further thoughts on our articles – letters to the editor are welcome.