Financial Analysis
Terminal Value
The estimated value of a business at the end of a DCF projection period, representing the present value of all cash flows beyond the forecast horizon.
The estimated value of a business at the conclusion of a discounted cash flow (DCF) projection period, capturing the present value of all cash flows expected beyond the explicit forecast horizon. Calculated most commonly via the Gordon Growth Model (a perpetuity formula applying a long-term growth rate to the final projected cash flow) or the exit multiple method (applying a valuation multiple to a terminal-year earnings figure). Terminal value typically accounts for 60 to 80 percent of total DCF value, making it the most assumption-sensitive component of the model. The result is discounted back to the present using the selected discount rate. (Also see: DCF, Discount Rate, Free Cash Flow, Valuation Multiple.)