medium · Investment Banking valuation-core
NovaTech's DCF results in a terminal value that represents 75% of its total enterprise value.
How should an analyst interpret this result?
- The company should be liquidated at once to realize the remaining 25% of value as immediate cash.
- The WACC being used is too low, making the near-term cash flows look comparatively less valuable.
- The company's value is heavily dependent on long-term growth assumptions rather than near-term cash flow.
- The model is almost certainly broken, since terminal value should never exceed 50% of enterprise value in a DCF.
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