Terminal Value

What is Terminal Value? — Definition

In a Discounted Cash Flow (DCF) analysis, you can only explicitly forecast cash flows for a finite period — usually 5–10 years. The terminal value captures everything beyond that horizon. It's calculated using either the Gordon Growth Model (TV = Final Year FCF × (1 + g) / (WACC - g), where g is the long-term growth rate) or an exit multiple approach (e.g., 15x terminal year EBITDA).

Terminal value typically represents 60–80% of a company's total DCF value — which means small changes in the assumed long-term growth rate or discount rate can dramatically change the total valuation. This sensitivity is why DCF analyses must include scenario analysis with conservative, base, and optimistic assumptions.

Example

A company generating $100M in FCF in year 10, with a long-term growth rate of 3% and a WACC of 10%, would have a terminal value of $1.43 billion ($100M × 1.03 / (0.10 - 0.03)). Discounted back 10 years at 10%, that's a present value of about $551M — and that's just the terminal value portion.

Terminal value calculations are fully disclosed in every BMInsider 100X Insider Report, along with sensitivity tables showing how value changes under different growth and discount rate assumptions.