Terminal Value - TV


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.


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BREAKING DOWN '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.

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  1. What can cause the terminal growth rate to be negative?

    Investors can use several different formulas when calculating terminal value for a firm, but all of them allow – at least ... Read Full Answer >>
  2. What is the benefit of the Modified Internal Rate Of Return (MIRR)?

    The modified internal rate of return (MIRR) is a financing metric used in business capital budgeting. Its primary benefit ... Read Full Answer >>
  3. When and why should the terminal value be discounted?

    Typically, an asset's terminal value is added to future cash flow projections and discounted to the present day. Discounting ... Read Full Answer >>
  4. When evaluating terminal value, should I use the perpetuity growth model or the exit ...

    In discounted cash flow (DCF) analysis, neither the perpetuity growth model nor the exit multiple approach is likely to render ... Read Full Answer >>
  5. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  6. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>

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