Terminal value represents the present value of all future cash flows beyond the explicit forecast period in a DCF model. It captures the ongoing value of a business assumed to continue operating indefinitely.
If the final year FCF is $20M, the perpetuity growth rate is 2.5%, and WACC is 10%, the terminal value = $20M × 1.025 / (0.10 - 0.025) = $273.3M.
Terminal value typically accounts for 60-80% of total DCF value, making it the most influential component. Choosing between perpetuity growth and exit multiple methods can lead to significantly different stock valuations.
MiniValuator supports both perpetuity growth and exit multiple terminal value methods. Users can switch between them and see how the choice affects the final intrinsic value estimate.
Ready to apply this concept? Try the MiniValuator DCF Calculator — calculate intrinsic value for any US stock in under 60 seconds.
