Angie · learn
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.
A fuller explanation of this one is still being written. The definition above is the short answer.
See also
- 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.
- 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.
- WACC — Cost of equity and cost of debt blended by how much of each the company uses. This is the rate every future dollar is discounted at, and it is the single most leveraged input in the model.
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.
