Terminal value

How it works

A DCF might forecast ten years in detail and then capture everything afterwards in one number. That number is usually the majority of the total valuation.

It is computed either by assuming a perpetual growth rate or by applying an exit multiple to the final forecast year.

Where it misleads people

When most of a valuation sits in the terminal value, the model is mostly an assumption about the far future wearing a spreadsheet. A perpetual growth rate above long-run economic growth implies the company eventually becomes the entire economy.