Terminal Value
Terminal Value (TV)
Valuation RatiosThe value of all cash flows beyond the explicit forecast period in a DCF, usually estimated with the Gordon growth formula. It typically accounts for the majority of a DCF's total value.
Formula
TV = FCF x (1 + g) / (WACC - g)
Why it matters
Because terminal value often makes up 60 to 80% of a DCF, small changes in the terminal growth rate or discount rate swing the whole valuation. It deserves more scrutiny than the near-year forecasts.
Indian example
Related terms
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