Terminal value
The estimated value at the end of a projection period representing cash flows or residual value beyond that period. Discount it back to the valuation date before adding it to the present value of the explicit forecast cash flows.
Terminal value in round numbers
Hypothetical enterprise discounted cash flow (DCF), in US$ millions: the present value of the explicit five-year operating cash flows is 8, and the present value of the terminal value is 40. Both are already discounted to the same valuation date. Operating enterprise value is 8 + 40 = 48, with 40 ÷ 48 ≈ 83.3% coming from the terminal component. This is not an undiscounted end-of-year value of 40 added to today’s cash-flow value.
| first | Present value of terminal value: 40 |
|---|---|
| ÷ | Operating enterprise value: 8 + 40 = 48 |
| = | Approximately 83.3% |
Terms Related to Terminal value
DCF · Discount rate · NPV · APV · All of the glossary