Factors influencing the choice of the explicit forecast horizon include:

• The projected holding period.
• An investor's average portfolio turnovers. The timeframe should ideally correspond with average turnover of the portfolio.
• Cyclicality of an industry. The forecast period should be long enough to allow the business to reach an expected mid-cycle level of sales and profitability.
• Company specific factors. For example, the effects of acquisitions or restructuring activities need to be included in the forecasts.
• Employer preferences. For example, there might be a period that the company does not pay dividends but the dividend discount model is required to evaluate the company.

Normalized earnings are earnings adjusted for cyclical ups and downs. Unusual or one-time influences are not included. Normalized earnings help show the true earnings from operations.

Long-Term Forecasting

After forecasting for the forecast period, analysts estimate the terminal value based on long-term projections.

• Establish a revenue projection for the explicit forecast period.
• Estimate a terminal value. Don't mechanically apply a long-term growth rate to a terminal year free cash flow projection. Will the terminal cash flow persist in the future?

Inflection points exist when the future looks different from the past. Anticipate inflection points driven by:

• Economic disruption.
• Regulation changes.
• Technological advances.

Technological developments can affect demand for a product, the quantity supplied of a product, or both. When a technological development results in a new product that threatens to cannibalize demand for an existing product, a unit forecast for the new product combined with an expected cannibalization factor can be used to estimate the impact on a future demand for the existing product.