Terminal Value (TV) determines the value of a company indefinitely after a specified forecast period - usually five years.
Analysts use a discounted cash flow (DCF) model to calculate the total value of a business. The forecast period and the final cost are integral components of the DCF.
The two most common methods for calculating the end value are constant growth (Gordon’s growth model) and the exit multiplier.
The continuous growth method assumes that the business will always generate cash flows at a constant rate, while the multiple exit method assumes that the business will be sold.