The estimated value of cash flows beyond an explicit forecast period in a valuation model.
How it works
Terminal value estimates the portion of a valuation that lies beyond the explicit forecast. Common methods use perpetual growth or an exit multiple.
Example
A perpetual-growth calculation applies a sustainable long-run growth rate to the following period’s cash flow and divides by the discount rate minus growth.
Limitations
Terminal value can dominate a DCF and is highly sensitive to small assumption changes. Growth must remain below the discount rate in the standard perpetual-growth formula.
Evidence LedgerHow this insight was built
Human reviewedThesis being tested
This definition explains Terminal Value accurately, with its practical use and material limitations.
Key assumptions
- The named calculation or convention is stated where definitions vary.
- The example is illustrative and not a forecast or recommendation.
What could invalidate the view
- A different market, instrument, jurisdiction, or methodology may use the term differently.
- The cited authority may revise its guidance or terminology.
- Editorial ownership
- Market Master · reviewed
- Approval state
- Reviewed financial content
- Evidence currency
- Current evidence window
- Source coverage
- 2 documented sources
Sources used for this insight