Terminal value is usually calculated with the constant growth (Gordon) model or the exit multiple method. Because it can make up a large part of total value, the long-term growth rate assumption must be chosen carefully.
Related terms
Discounted cash flow (DCF)A valuation method based on discounting the free cash flows an asset or company will generate in the future to the present using an appropriate discount rate.Multiples methodEstimating value using ratios of comparable companies' market values, or of prices paid in comparable transactions, to financial indicators.Completion accountsFinancial statements prepared as at the closing date of an acquisition, through which the final price is set by net debt and working capital adjustments.Cost of capitalThe minimum rate of return investors expect from an investment in return for the risk they take.Earn-outA mechanism under which part of the purchase price is paid depending on the target company reaching certain performance targets after closing.EBITDAEarnings before interest, tax, depreciation and amortisation; used as an indicator of the cash-like profitability generated by a company's core operations.
Last updated: October 22, 2026 · This definition is for general information only.