Terminal Value Calculator
The formula
What the terminal value tells you
The value of everything after the explicit forecast — computed as a perpetuity growing forever, or as an exit multiple on the final year.
Calculation: Gordon TV = FCF × (1+g) ÷ (WACC − g); Exit TV = metric × multiple. Enter your inputs and every substitution is shown below the result.
Reading the result
The two methods should roughly agree; a wide gap means the exit multiple and the growth/WACC assumptions are telling different stories.
Rules of thumb: Terminal growth 2–3%; WACC−g spread of at least 4 points keeps TV sane
Limitations and best practice
A terminal growth rate near the WACC explodes the Gordon value — the denominator approaches zero and the model becomes a division-by-nothing machine.
This calculator gives an estimate based on standard formulas; it is not professional financial, medical, legal or engineering advice. Verify anything you plan to act on with a qualified professional and your own records.
Frequently asked questions
Gordon vs exit multiple — which is right?
Can terminal growth exceed the economy forever?
Source & methodology
Standard valuation practice (McKinsey Valuation chapter 7).
Terminal Value: the number, the method and the caveats
This page was written for one job: turning your own inputs into a defensible figure, with the working shown. There are plenty of pages about Terminal Value; almost none of them show the working. This one does: the formula, every input, a fully computed example, and a sensitivity analysis calculated live from this engine’s own defaults.
There is a habit that separates people who get useful answers from Financial Analysis numbers: they decide what question the figure answers before they compute it. Terminal Value answers “Terminal value (Gordon growth)?” — and nothing else, which is precisely why the result is trustworthy.
The useful way to hold Terminal Value is as a ratio with a story attached: Gordon TV = FCF × (1+g) ÷ (WACC − g); Exit TV = metric × multiple says how the parts combine, and the $12,648,000 figure above is simply that sentence written in numbers. Everything that follows unpacks one clause of the sentence at a time.
Every figure in the prose is generated by the engine rather than written beside it — the worked example resolves to terminal value (Gordon growth) = $12,648,000 on the default inputs, and the sensitivity section ranks the inputs that move the result — WACC first, at ≈16.3 % of the headline for a ten-percent error either way in that input. Work down the page and by the end you could re-derive the result in a spreadsheet from memory.
Inside the Terminal Value calculation: formula and every input
The engine implements a single stated model: Gordon TV = FCF × (1+g) ÷ (WACC − g); Exit TV = metric × multiple. There is no hidden coefficient and no login-gated precision — the formula printed is the formula executed, which is also what makes the result citable.
Final-year free cash flow ($) (example value 620,000) is a plain measured quantity — the unit shown in the label is the unit the formula expects. If the period is partial, decide whether you mean elapsed or planned time and keep that meaning across every field.
Perpetual growth (%) (example value 2) is a numeric input whose unit is fixed by the label; a wrong unit is a wrong answer wearing a plausible disguise. Enter it exactly as your document states it — quoted annual, monthly and effective rates are three different numbers.
WACC (%) (example value 7) is a measured number in the unit named by the label; the formula does not convert for you. Enter it exactly as your document states it — quoted annual, monthly and effective rates are three different numbers.
Exit multiple (× EBITDA-ish) (example value 6) is a quantity rather than a category — precision here is cheap and worth having. The example value is there to demonstrate the mechanics, not to describe your situation — overwrite it.
A fully worked Terminal Value example
Abstract formulas are hard to trust, so here is the complete substitution using the default inputs, written the way an examiner would want it. Starting figures: Final-year free cash flow ($), Perpetual growth (%), WACC (%), Exit multiple (× EBITDA-ish). The endpoint of that chain is $12,648,000 of terminal value (Gordon growth), sitting in the “The exit-multiple alternative gives $3,720,000 — 71% apart, which is the whole debate” band.
- Gordon: $620,000 × 1.02 ÷ (7% − 2%) = $12,648,000
- Exit-multiple: $620,000 × 6 = $3,720,000
Implied exit multiple of Gordon TV — 20.4 ×. Read next to the headline, this is the figure that shows the shape of the trade-off.
TV per point of WACC: at 9% — $10,540,000. If your inputs change, this is usually the first companion figure to move.
TV per point of WACC: at 11% — $7,905,000. Read next to the headline, this is the figure that shows the shape of the trade-off.
Overwrite any input above and every line of this example updates with it — the substitution is live, not a screenshot of somebody else’s numbers.
How far Terminal Value can reasonably move
The honest version of any estimate is a corridor, and this one is cheap to produce: Terminal Value was recomputed at 5 points along the dominant input, with every other field left untouched.
| WACC setting | Terminal value (Gordon growth) |
|---|---|
| 80 % of the example value | $17,566,667 |
| 90 % of the example value | $14,706,977 |
| example inputs | $12,648,000 |
| 110 % of the example value | $11,094,737 |
| 120 % of the example value | $9,881,250 |
That spread — $9,881,250 at the low end, $17,566,667 at the high — is what a careful read of Terminal Value looks like: a band you can state out loud, with the reason for each edge. Reproduce it in the form above by editing WACC alone; the substitution steps will follow your figures exactly.
Sensitivity: which inputs change Terminal Value the most
This list was computed for this specific engine just now: each numeric input was nudged ±10 % while every other field held its example value, and the terminal value (Gordon growth) was recalculated from scratch. Read it as a map of where Terminal Value is fragile — drawn for the example inputs, which is the map you want when deciding what to measure carefully.
- WACC +10 % → Terminal Value = $11,094,737 · −10 % → $14,706,977 (the terminal value (Gordon growth) shifts ≈16.3 %)
- Final-year free cash flow +10 % → Terminal Value = $13,912,800 · −10 % → $11,383,200 (the terminal value (Gordon growth) shifts ≈10.0 %)
- Nudge Perpetual growth by ±10 % and Terminal Value lands between $12,137,692 and $13,200,833 (sensitivity ≈4.4 %)
WACC is the dominant lever here: ten percent either way moves the result by about 16.3 %, from $11,094,737 to $14,706,977. Spend your verification effort there first, and treat Final-year free cash flow as the second priority (≈10.0 % per ten percent). The rest of the inputs earn only a rounding-error of attention, and that asymmetry is the practical payoff of measuring rather than asserting.
Interpreting the Terminal Value verdict
Nobody acts on a bare figure — they act on a figure with a comparison attached. The verdict attached to the default calculation — “The exit-multiple alternative gives $3,720,000 — 71% apart, which is the whole debate” — is one band on a ladder your own figure may sit somewhere else on. How much of that band is luck? On WACC alone ten percent either way covers $11,094,737 to $14,706,977. The practical reading rules: compare against your own history before comparing against other people; treat band boundaries as zones, not walls — one point on the wrong side of a threshold rarely changes a real outcome; and when a companion output contradicts the headline, believe the pair.
The comparison worth making is not with somebody else’s Terminal Value but with the version of your own situation measured last quarter — same formula, same conventions, different inputs.
Common mistakes with Terminal Value (and the fix)
A terminal growth rate near the WACC explodes the Gordon value — the denominator approaches zero and the model becomes a division-by-nothing machine. This calculator gives an estimate based on standard formulas; it is not professional financial, medical, legal or engineering advice. Verify anything you plan to act on with a qualified professional and your own records.
Reporting the headline and quietly discarding Implied exit multiple of Gordon TV. The companions are where the shape of the trade-off survives the rounding.
This model has its own particular trap: WACC carries ≈16.3 % of the response per ten percent of error, so effort spent elsewhere is largely decorative.
Another is comparing across contexts: a Terminal Value computed with one set of conventions should never be lined up against a figure computed with another. Check the inputs behind both before ranking them.
Six things to confirm before acting on Terminal Value
- State, in one sentence, which convention each rate, unit or period in the form is using.
- Compare the result with one independent method or published benchmark.
- Check WACC before anything else: it is the measured dominant input, ≈16.3 % of Terminal Value per ten percent.
- Compare the output against one published benchmark or a colleague’s independent estimate.
- Check that every field the formula needs actually arrived from a document, not from recollection.
- Run the ±10 % stress on the top two levers and check that your conclusion survives both.
How to use the Terminal Value tool properly
The tool does the arithmetic; the routine below is what makes the arithmetic trustworthy. Five steps, a minute total — and afterwards you will know not just what the number is, but which assumption produced it.
Step 1 — one document, one pass. Open the statement, label or record that holds final-year free cash flow ($), perpetual growth (%), wacc (%), exit multiple (× ebitda-ish) and transcribe straight into the form. Transcription from a single source removes the mismatch errors that appear when figures are assembled from three different places. If a result feels obviously right, that is the moment to check the inputs hardest.
Step 2 — compute the version you would not be embarrassed by. If a stranger audited your inputs, which set would you hand over? Enter that set, read the result, and treat everything else as upside. Write the assumptions in the same file as the result, and future arguments take minutes instead of meetings.
Step 3 — change one input at a time. Nudge a single field by ten percent, watch the headline and its companions move, then undo it. Two or three fields will dominate — the sensitivity table above already ranks them for this engine. When in doubt, prefer the boring input: the interesting one is usually the one you misread.
Step 4 — run the scenario trio. Expected, pessimistic, optimistic. The gap between pessimistic and expected is the number to plan against; the optimistic result is useful only as a ceiling. Most surprises in numbers are surprises about inputs, not about formulas.
Step 5 — save the story with the figure. A number without its inputs and its date is unusable within a quarter. Record $12,648,000, the assumptions behind it, and today’s date; your future self will be auditing a stranger’s arithmetic. Most surprises in numbers are surprises about inputs, not about formulas.
Who actually uses Terminal Value — and when
Business & Entrepreneurship arguments end at arithmetic or they do not end. Terminal Value is the arithmetic: $12,648,000 on the example inputs, reproducible by anyone who types the same numbers. One decimal place more than your data supports is one decimal place of fiction.
Professionals in Financial Analysis use this style of calculation as a screening filter before spending real money or effort: a quick Terminal Value check eliminates weak options in minutes, and the survivors earn the deeper, slower analysis. Repeating a calculation with the same numbers proves only that the arithmetic is reliable — which is worth knowing.
Treat Terminal Value like a smoke alarm rather than a painting — its value is in being tested periodically, not in being admired once. When in doubt, prefer the boring input: the interesting one is usually the one you misread.
People also ask about Terminal Value
What affects Terminal Value the most?
Terminal Value is driven above all by WACC. Perturbing only that field by ten percent either way produced $11,094,737 against the $12,648,000 baseline — a ≈16.3 % response, while Final-year free cash flow manages ≈10.0 %.
Which matters more: final-year free cash flow or wacc?
For Terminal Value, WACC wins the head-to-head (≈16.3 % against ≈10.0 % per ten-percent change). Knowing which input dominates is the difference between careful work and merely slow work.
What is a typical Terminal Value?
With the example inputs on this page the result is $12,648,000, labelled “The exit-multiple alternative gives $3,720,000 — 71% apart, which is the whole debate”. “Typical” varies with situation, which is why every result here ships with its verdict band and its sensitivity list: they turn one figure into a range you can locate yourself inside.
How do I calculate Terminal Value by hand?
Use the stated model — Gordon TV = FCF × (1+g) ÷ (WACC − g); Exit TV = metric × multiple — and substitute in the order the tool prints (it starts from Gordon: $620,000 × 1.02 ÷ (7% − 2%) = $12,648,000). On the example inputs the hand route lands on $12,648,000, exactly what the calculator shows. A spreadsheet reproduces it in two or three cells; doing it once by hand is what makes the automated answer trustworthy.
What happens to Terminal Value if wacc changes by 10 %?
The engine was re-run with that field moved by ten percent while everything else stayed fixed: the terminal value (Gordon growth) goes across $11,094,737 to $14,706,977, a swing of roughly 16.3 % around the $12,648,000 baseline. That ratio is the practical definition of how much this input matters.
Is the Terminal Value result of $12,648,000 good or bad?
Neither, on its own — the label “The exit-multiple alternative gives $3,720,000 — 71% apart, which is the whole debate” is the band this figure falls in for the example inputs, and your own inputs will place you elsewhere on the same ladder. Judge the number against your history and your alternatives, and remember that a ten-percent error in WACC alone moves it by ≈16.3 %.
Should I use Terminal Value before launching?
Yes — a Terminal Value run on honest inputs before spending is the cheapest consulting an entrepreneur can buy. Re-run at every pricing change; the number moves more often than founders expect.
What affects Terminal Value the most?
Sensitivity depends on where you start, but the inputs Final-year free cash flow ($) and Perpetual growth (%) typically move Terminal Value further than the rest because they enter the formula multiplicatively. If you can only measure two things well, measure those and hold the others at conservative defaults.
Gordon vs exit multiple — which is right?
Gordon is internally consistent economics; exit multiples match how deals actually clear. Rigorous models show both and pick a defensible blend.
Can terminal growth exceed the economy forever?
No — a firm growing above GDP perpetually eventually becomes the economy. 2–3% is the honest ceiling.
Can this tool see the numbers I type?
It cannot. There is no submission step: the calculation happens in your browser and the result disappears when you close the page. Treat the fields above as a scratchpad rather than a form.
The vocabulary of Terminal Value
- Implied exit multiple of Gordon TV
- 20.4 × on the example inputs — a companion figure printed beside the headline of Terminal Value so that no result is read in isolation.
- TV per point of WACC: at 9%
- $10,540,000 on the example inputs — a companion figure printed beside the headline of Terminal Value so that no result is read in isolation.
- TV per point of WACC: at 11%
- $7,905,000 in the default Terminal Value calculation — one of the secondary figures an experienced reader checks before trusting the primary number.
- Terminal value (Gordon growth)
- The primary output of this tool: $12,648,000 for the default inputs, computed exactly from Gordon TV = FCF × (1+g) ÷ (WACC − g); Exit TV = metric × multiple.
- Worked example
- The calculation written out in full so that nothing on this page has to be taken on trust.
- Verdict band
- The plain-language label — here “The exit-multiple alternative gives $3,720,000 — 71% apart, which is the whole debate” — mapping the computed figure onto experience-based ranges for Business & Entrepreneurship.
- Sensitivity (±10 %)
- How far the Terminal Value moves when a single input is nudged ten percent either way; the ranked list on this page is computed live from this engine.
Methodology, sources and limits
There is no black box on this page — the engine evaluates Gordon TV = FCF × (1+g) ÷ (WACC − g); Exit TV = metric × multiple. Source of record: Standard valuation practice (McKinsey Valuation chapter 7). Any other implementation of this model should return the same figure for the same inputs. If one does not, the difference is in its assumptions — which this page prints and that one probably does not.
Nothing here replaces a qualified professional, and nothing here is approximate either — the arithmetic is exact, and the honesty is in the inputs you supply. Nothing is smoothed, weighted or adjusted behind the scenes; where judgement enters, this page says so and names the input responsible.
Next steps after the calculation
Re-run the calculation with your own figures, stress the two most sensitive inputs by ±10 %, and only then act on the result.
The audience here is people who need one trustworthy number before their next decision. Everything you need to defend the result — formula, substitution, sensitivity, source — is printed above, so the only remaining variable is the honesty of your inputs.