Pitfalls

Most Terminal Value errors are judgment errors.

The formula can be correct while the assumption is weak.

High perpetual growth

A company cannot outgrow the economy forever. Use mature, sustainable growth.

No discounting

Terminal Value is calculated in the future. Bring it back to today.

Wrong metric

EV/EBITDA must be applied to EBITDA, not revenue or PAT.

No maturity check

Terminal Value assumes a stable future state. Confirm the company has normalized.

Quality checklist

  • Is terminal-year FCFF normalized?
  • Is WACC greater than growth?
  • Is the multiple supported by peers?
  • Does Terminal Value dominate the result too heavily?

Misconception trap

A formula with weak assumptions is not stronger than a market method with better evidence.