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.

VIDEO

Loading the player...
RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. EBITDA/EV Multiple

    A financial ratio that measures a company's return on investment. ...
  3. Interest

    1. The charge for the privilege of borrowing money, typically ...
  4. Earnings Before Interest, Taxes, ...

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

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

    The ability of an asset to generate earnings, which are then ...
RELATED FAQS
  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. What Book Value Of Equity Per Share (BVPS) ratio indicates a buy signal?

    Book value of equity per share (BVPS) is a ratio used in fundamental analysis to compare the amount of a company's shareholders' ... Read Full Answer >>
  6. Does stockholders equity accurately reflect a company's worth?

    Stockholders' equity is one method to evaluate a company's worth. It tends to work better for companies in established industries ... Read Full Answer >>
Related Articles
  1. Investing Basics

    What is Terminal Value?

    The terminal value of an asset is its anticipated value on a certain date in the future.
  2. Retirement

    Top 4 Reasons To Save For Retirement Now

    No more excuses. Make sure you are financially secure and independent for your golden years.
  3. Bonds & Fixed Income

    Accelerating Returns With Continuous Compounding

    Investopedia explains the natural log and exponential functions used to calculate this value.
  4. Investing Basics

    Overcoming Compounding's Dark Side

    Understanding how money is made and lost over time can help you improve your returns.
  5. Options & Futures

    Principal-Protected Notes: Hedge Funds For Everyday Investors

    PPNs guarantee to return at least 100% of the original investment and have the potential to return much more.
  6. Fundamental Analysis

    Understanding the Profitability Index

    The profitability index (PI) is a modification of the net present value method of assessing an investment’s attractiveness.
  7. Economics

    What is Neoliberalism?

    Neoliberalism is a little-used term to describe an economy where the government has few, if any, controls on economic factors.
  8. Fundamental Analysis

    Explaining the Monte Carlo Simulation

    Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes.
  9. Fundamental Analysis

    Are Fast-Casual Restaurants Overvalued?

    Can fast-casual restaurants actually grow to the levels that investors believe they can?
  10. Economics

    Understanding Limited Liability

    Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!