By Gilbert E. Matthews, CFA, Sutter Securities, Inc. (San Francisco, Calif., USA)
Terminal value:
- Terminal value is the dominant component of most DCF valuations
- With 5-year projections, terminal value usually accounts for 70% or more of the aggregate value
- This presentation will examine several factors that impact terminal value and discuss how to address them
- The final year of the projection
- The trend toward using lower long-term growth rates
- The “perpetual” growth rate and firm mortality
- The use of multiples for terminal value
- The relationship between capital expenditures and depreciation
- The appropriate treatment of amortization
