Terminal Value

The Terminal Value calculator computes the terminal value of a company accounting for future cash flow.

INSTRUCTIONS: Choose units and enter the following:

• (FCF) Free Cash Flow 
• (g) Government Bond Yield
• (r) Cost of Equity

Terminal Value (TV): The value is returned in U.S. dollars (USD).  However, these can be automatically converted to compatible units via the pull-down menu.

The Math / Science

The Terminal Value (TV) is a key component in the Discounted Cash Flow (DCF) analysis, used to estimate the value of a business beyond the forecast period. It captures the value of the company from the end of the forecast period into perpetuity. The two most common methods for calculating Terminal Value are the Gordon Growth Model (also known as the Perpetuity Growth Model) and the Exit Multiple Method.

Gordon Growth Model (Perpetuity Growth Model)

The formula is:

TV = FCFn×(1+g) / (r−g)

where:

• TV = Terminal Value
• FCFn​ = Free Cash Flow in the final forecasted year
• g = Perpetual growth rate of FCF beyond the forecast period
• r = Cost of Equity, AKA Discount rate (often the Weighted Average Cost of Capital, WACC)