Terminal value

Also called: terminal value, gordon growth

The value of all cash flows after the forecast years, assuming the company grows at a steady rate forever.

Formula

Terminal value = Final-year FCF × (1 + g) ÷ (WACC − g)

Worked example

1. g = terminal growth rate. It must be lower than WACC, or the formula breaks.
2. This is the Gordon Growth Model. It's then discounted back to today like any other year.

How to read it

Terminal value is often over half of the total. If it's above about 75%, the valuation leans heavily on the far future.

See it with real numbers: DCF → (free account)