Meaning
Terminal Value estimates a business’s worth beyond a detailed forecast period, assuming stable, long-term operations.Definition
It’s the present value of all expected free cash flows a company generates indefinitely after an initial projection timeframe. It’s crucial in Discounted Cash Flow (DCF) models.How It Works
Calculated using the perpetuity growth model (constant growth rate) or the exit multiple method (market multiples), then discounted to the present.Significance
It often represents a substantial portion (50-80%) of a company’s total estimated value in DCF analysis, vital for financial modeling and investment evaluations.Author
