Terminal Value

Terminal value or continuing value is a financial term that refers to the estimated value of a business case investment at a future point in time. It is used to estimate the value of an investment beyond the forecast period in a discounted cash flow (DCF) analysis.

Terminal value is calculated by taking the projected cash flows after the forecast period and dividing them by the difference between the required rate of return and the long-term growth rate of the company.

There are two main approaches to calculating terminal value: the perpetual growth method and the exit multiple method. The perpetual growth method assumes that the asset or business will continue to grow at a constant rate into the future, while the exit multiple method uses the current market value of similar assets or businesses to estimate the terminal value.

Terminal value is an important factor in DCF analysis, as it can represent a significant portion of the overall value of an investment.

Terminal Value is one of the features of the Financial Analysis Templates.