Terminal Value
Investment Banking glossary · Investment Banking Valuation
Definition
Value beyond the DCF projection period (EMM or PGM).
Terminal Value in plain English
When you value a company by adding up its future cash, you can only realistically forecast maybe 5-10 years — but the business keeps making money forever after that. Terminal value is a single lump-sum estimate of ALL that value beyond your forecast window, so you don't have to predict year 87. It's usually the biggest chunk of the whole valuation, calculated one of two ways: EMM (multiply the last year's profit by a market multiple, like "10 times earnings") or PGM (assume cash grows slowly and steadily forever). Because it's so large, a small tweak to its assumptions swings the entire answer — which is exactly why bankers argue over it.
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