Chapter 44. Modeling Exponential Growth

  • How can I model the growth of a company’s revenue over time?

If you want to value a company, it’s important to have some idea about its future revenues. Although the future may not be like the past, we often begin a valuation analysis of a corporation by studying the company’s revenue growth during the recent past. Many analysts like to fit a trend curve to recent revenue growth. To fit a trend curve, you plot the year on the x-axis. (For example, the first year of data is year 1, the second year of data is year 2, and so on.) On the y-axis, you plot the company’s revenue.

Usually, the relationship between time and revenue will not be a straight line. Recall that a straight line always has the same slope, ...

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