Plain-English definition
Terminal Value is the value of all expected cash flows after the explicit forecast period. It is calculated at the end of the forecast period and then discounted back to today.
Core concept
Terminal Value is a business maturity assumption.
It is not a plug. It is your estimate of what the company becomes after the detailed forecast period ends.
What it is not
- Not only the final year cash flow.
- Not a random balancing figure.
- Not permission to use high growth forever.
- Not automatically equal under both methods.
Reverse 5W1H map
Why
A small assumption can materially change enterprise value.
Who
Finance students who know DCF steps but need judgment.
Where
Valuation, IB cases, investment memos, and advisory models.
When
After forecasts are complete and the company is stable.
What
A continuing value estimate after the detailed forecast period.
How
Use Gordon Growth or Exit Multiple, then discount to today.