Terminal Value - TV

AAA

DEFINITION of 'Terminal Value - TV'

The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as interest rates and the current value of the asset, and assuming a stable growth rate. In addition to bond and asset applications, terminal value can also refer to the value of an entire company at a specified future valuation date. Two common approaches are used to evaluate the terminal value of an asset: the "perpetuity growth model" and the "exit approach."


Also called continuing value or horizon value.

INVESTOPEDIA EXPLAINS 'Terminal Value - TV'

The terminal value of an asset is its anticipated value on a certain date in the future. It is used in multi-stage discounted cash flow analysis and the study of cash flow projections for a several-year period. The perpetuity growth model is used to identify ongoing free cash flows. The exit or terminal multiple approach assumes the asset will be sold at the end of a specified time period, helping investors evaluate risk/reward scenarios for the asset. A commonly used value is enterprise value/EBITDA (earnings before interest, tax, depreciation and amortization) or EV/EBITDA. An asset's terminal value is a projection that is useful in budget planning, and also in evaluating the potential gain of an investment over a specified time period.

RELATED TERMS
  1. EBITDA/EV Multiple

    A financial ratio that measures a company's return on investment. ...
  2. Rule Of 72

    A rule stating that in order to find the number of years required ...
  3. Earnings Before Interest, Taxes, ...

    An indicator of a company's financial performance which is calculated ...
  4. Compound

    The ability of an asset to generate earnings, which are then ...
  5. Compounding

    The ability of an asset to generate earnings, which are then ...
  6. Interest

    1. The charge for the privilege of borrowing money, typically ...
Related Articles
  1. Retirement

    Top 4 Reasons To Save For Retirement ...

  2. Accelerating Returns With Continuous Compounding
    Bonds & Fixed Income

    Accelerating Returns With Continuous ...

  3. Investing Basics

    Overcoming Compounding's Dark Side

  4. Options & Futures

    Principal-Protected Notes: Hedge Funds ...

Hot Definitions
  1. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  2. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  5. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  6. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
Trading Center