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Terminal Value CalculatorDCF / Gordon Growth / Exit Multiple
Method variant

H-Model Terminal Value

The H-model is a closed-form smoothing of two-stage DCF. Growth fades linearly from a high initial rate to a stable long-run rate over a period 2H years, where H is half the high-growth window.

Direct answer
The H-model collapses a fade-period two-stage DCF into a single equation. Value equals the stable-perpetuity value at the long-run growth rate plus an adjustment that captures the excess value from H years of above-stable growth. It is most useful pedagogically and as a sanity check on a more detailed three-stage build.
Formula

The H-model equation

H-model value (per share or per FCF basis)
V0 = [ FCF0 * (1 + gL) ] / (r - gL) + [ FCF0 * H * (gS - gL) ] / (r - gL)

Where gS is the initial short-term growth rate, gL is the long-run stable growth rate, r is the discount rate, and H is half the length of the high-growth window. The first term is the stable-perpetuity value; the second term is the value of the excess growth that fades over 2H years.

Source: CFA Program Curriculum 2024, Level II, Equity reading on Free Cash Flow Valuation; Damodaran, Investment Valuation 3rd ed., Chapter 13Last verified June 2026.
When the H-model fits

And when it does not

Good fit: gradual deceleration

Mid-sized growth companies converging on industry maturity over a defined window. The linear-fade assumption matches the real pattern reasonably well.

Poor fit: lumpy or step-change businesses

Biotech with a binary trial outcome. Commodity producers with sharp cycle inflections. The H-model smooths exactly what you want to model explicitly.

See the two-stage page for the explicit alternative
Last verified June 2026. Source: CFA Program Curriculum 2024, Damodaran Investment Valuation 3rd ed.