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Glossary · PSX term

Terminal value.

Terminal value estimates a company's worth beyond the explicit forecast period in a valuation.

Definition

In a DCF, since you cannot forecast cash flows forever, terminal value captures all cash beyond the final projected year, often as the largest part of the total. It is sensitive to the assumed long-term growth and discount rate.

Worked example

If a DCF forecasts ten years explicitly, the terminal value represents everything the company earns after year ten.

Related on PSX Clarity

Term
Discounted cash flow (DCF)
Term
Discount rate
Term
Intrinsic value

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