Angie · learn
Terminal method
How value beyond the horizon is set: Gordon growth, which assumes cash flow grows forever at a fixed rate, or a multiple applied to the final year.
A fuller explanation of this one is still being written. The definition above is the short answer.
See also
- Terminal value — Everything the business is worth beyond the projection horizon, set by Gordon growth or an exit multiple and then discounted back. It is usually the majority of the answer.
- Perpetual growth — The rate the company is assumed to grow at forever, once the explicit horizon ends. It feeds the Gordon-growth terminal value and cannot sensibly exceed the economy's long-run growth.
- Exit FCF multiple — The multiple applied to terminal-year free cash flow when the exit-multiple method is used instead of Gordon growth.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
