Terminal value

Terminal value (valeur terminale) is the value attributable to all cash flows beyond the explicit projection period in a DCF model, calculated using either the Gordon Growth Model (perpetuity of normalised cash flow at a stable long-term growth rate) or the exit multiple method (applying a terminal EV/EBITDA multiple to the final year EBITDA). It typically represents 60–80% of total DCF enterprise value — making the terminal growth rate and WACC assumptions the most value-sensitive parameters in any DCF model. Its rigorous construction is essential for a defensible valuation.

‍

Example: a Swiss industrial SME projects CHF 2.0 million normalised FCFF at year 5. Terminal value using Gordon Growth: CHF 2.0 million / (9.5% WACC - 2.0% terminal growth) = CHF 26.7 million. Discounted to present at 9.5% over 5 years: CHF 16.9 million. This terminal value represents 74% of total DCF enterprise value (CHF 22.8 million) — confirming that the long-term assumptions drive the vast majority of value.

‍

Hectelion constructs terminal values with rigorously documented growth rate and WACC assumptions, tested through sensitivity analysis across multiple scenarios.