Terminal Value
Private Credit glossary · Underwriting & Credit Analysis
Definition
Value of cash flows beyond the explicit forecast period.
Terminal Value in plain English
When you try to figure out what a business is worth today, you add up all the cash it will hand you in the future. But you can only guess year-by-year for so long — maybe 5 or 10 years — before the crystal ball gets too foggy. Terminal value is your shortcut for "and everything after that": one lump number that stands in for all the cash flows past your detailed forecast. It's like pricing a fruit tree — you can count next few seasons' apples carefully, then slap one big estimate on "all the apples for the rest of its life." It often makes up most of the total value, so how you estimate it matters a lot.
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