Terminal Value (TV)

Terminal value values the net present value of a company\'s future cash flows beyond a standard (out to five years) forecast period. Calculating TV gives investors and analysts a way of determining the value of a company using estimated cash flows as the calculation basis. Analysts use two models to calculate TV: the perpetuity growth method (which assumes a business grows in perpetuity at a smoothed constant rate), and the exit multiple method, which calculates TV using industry sector valuation multiples.