What happens to the valuation credibility of a DCF as the time period extends beyond 15 years?

When the time period of a Discounted Cash Flow (DCF) analysis extends beyond 15 years, predicting future free cash flows becomes increasingly challenging. This difficulty arises because the assumptions and estimates regarding growth rates, market conditions, and company performance tend to be less certain over longer horizons.

In the shorter term, analysts can rely on established trends, historical data, and a clearer understanding of the business's operating environment. However, as the forecast period stretches further into the future, there are many variables that can change, such as competitive dynamics, economic shifts, and regulatory impacts. This uncertainty leads to greater difficulty in accurately projecting free cash flows, which can compromise the reliability of the valuation produced by the DCF model. Thus, the credibility of the valuation diminishes as the forecast period extends beyond a typical range.