Terminal Value Calculator

What is Terminal Value? Terminal value is the estimated value of a company’s operating cash flows after the explicit forecast period ends (after Year N). In a DCF, it converts l...

Terminal Value Calculator

Compute terminal value (TV) using either the Perpetuity Growth (Gordon) method or an Exit Multiple. This tool also calculates the present value (PV) of terminal value given a discount rate and terminal year (N).

Perpetuity Growth (Gordon)Exit Multiple

Terminal value is measured at the end of Year N. PV discounts terminal value back by N years.

%

Used to discount terminal value back to today. For Gordon Growth, this is also r in (r − g).

$

FCFF in the final explicit forecast year (end of Year N). The Gordon formula uses FCFF(N+1), which we compute as FCFF(N) × (1 + g).

%

Long-run growth assumption (typically conservative). For Gordon Growth, g must be less than the discount rate.

$

The metric at the end of Year N that your multiple applies to (for example, EBITDA for EV/EBITDA, Revenue for EV/Revenue, Earnings for P/E).

Determines whether the terminal value represents enterprise value (EV multiples) or equity value (P/E).

The valuation multiple applied to the Year N metric (e.g., 12× EBITDA).

Scenarios
Use scenarios to quickly compare typical terminal value assumptions.
Base Case (Gordon)Bull Case (Gordon)Bear Case (Gordon)Base Case (Exit Multiple)

Results

  • Terminal Value (hidden helper)$
  • PV of Terminal Value (hidden helper)$
  • Terminal Value (Enterprise Value, end of Year N)$
  • Terminal Value (Equity Value, end of Year N)$
  • Implied FCFF in Year N+1$
  • PV of Terminal Value (Enterprise Value, today)$
  • PV of Terminal Value (Equity Value, today)$

Enter your inputs above to calculate the results.

What is Terminal Value?

Terminal value is the estimated value of a company’s operating cash flows after the explicit forecast period ends (after Year N).

In a DCF, it converts long-run value creation assumptions (normalized FCFF, sustainable growth, risk via WACC, or market multiples like EV/EBITDA) into an end-of-horizon enterprise value.

Because it can represent a large share of total enterprise value, small changes in g, WACC, or the exit multiple can swing the valuation materially.

Formula

FCFFN + 1 = FCFFNtimes(1 + g)
TVN = (FCFFN + 1) / r-g
PV(TV) = TVN / ((1 + r)N)
TVN = MetricNtimes ExitMultiple
PV(TV) = TVN / ((1 + r)N)

Example

  • Perpetuity Growth (Gordon): Assume N = 5, r = 10%, g = 2%, and FCFF_N = $50,000,000. Then FCFF_{N+1} = $51,000,000, TV_N = $637,500,000, and PV(TV) = $395,837,343.
  • Exit Multiple: Assume N = 5, r = 10%, Metric_N (e.g., EBITDA) = $80,000,000, and ExitMultiple = 12 (EV/EBITDA). Then TV_N = $960,000,000 and PV(TV) = $596,084,470.

Frequently Asked Questions

What’s the difference between the Perpetuity Growth (Gordon) method and the Exit Multiple method?

Gordon estimates value from cash flows growing forever at a steady rate (best when the business reaches a stable “steady state”). Exit Multiple estimates value using a market multiple (best when you have strong comps and a defensible multiple).

Should I enter FCFF in Year N or Year N+1 for the Gordon method?

Enter FCFF in Year N (the last forecast year). The calculator will compute FCFF in Year N+1 as FCFF_N × (1 + g) and use that in the terminal value formula.

Why is my terminal value exploding (or showing weird/negative results)?

In the Gordon method, the math breaks if g ≥ r (growth rate equal to or higher than the discount rate). Even if g is just close to r, terminal value can blow up. Lower g, raise r, or sanity-check that you’re using realistic long-run assumptions.

How do I choose a “reasonable” terminal growth rate (g) or exit multiple?

g should reflect long-run, sustainable growth (often anchored to long-term nominal GDP/inflation context) and must be consistent with your discount rate assumptions. For exit multiples, use comparable-company (or precedent transaction) multiples that match your metric definition (e.g., EV/EBITDA on a consistent basis) and reflect your company’s steady-state margins and growth.

Sources & Methodology