Terminal Value
The value of all cash flows beyond the explicit forecast — typically 60-80% of total DCF value.
Terminal value (TV) captures the company's value beyond your explicit forecast (usually years 6-10 onward into perpetuity). Two methods: (1) Gordon Growth (perpetuity): TV = FCF_final × (1+g) / (WACC−g), assuming constant growth forever. Use g = GDP growth or inflation (~2-3%). (2) Exit multiple: TV = EBITDA_final × exit multiple (e.g., 10x), implying you sell the company at year 10. Critical: TV is typically 60-80% of total enterprise value, so terminal growth assumptions dominate the valuation. A 1% change in terminal g can swing value 20-30%. Always sensitivity-test terminal assumptions. Never use terminal g > long-term GDP growth (~2-3%) unless you believe the company will eventually become larger than the economy.
Discounted Cash Flow (DCF)
Intrinsic valuation by discounting projected free cash flows to present value.
Weighted Average Cost of Capital (WACC)
The blended cost of equity and debt — the hurdle rate for investments.
Gordon Growth Model
Single-stage DDM assuming constant dividend growth in perpetuity.
Market Capitalization
Share price multiplied by shares outstanding — the total equity value.
Enterprise Value (EV)
Market cap plus net debt — the total acquisition value of the business.
P/E Ratio
Share price divided by earnings per share — how much you pay per dollar of profit.