💡 What is Terminal Value—and why should you care?

When we value a business, we try to estimate how much future cash it can generate. One thing to keep in mind is: most businesses don’t just operate for 5 or 10 years—they aim to grow and make money indefinitely.

That’s where Terminal Value comes in.

👉 Terminal Value is a way to estimate the value of all those future years beyond your forecast. It answers the question:
“What is this business worth after the next few years we can reasonably forecast?”

Think of it like this:
If you’re buying a fruit tree, you don’t just care about the fruit it gives you in the first 5 years—you care about all the fruit it will bear over its lifetime. Terminal Value estimates the value of all that future fruit.

It’s a big deal because it often makes up 50% or more of a company’s valuation in a DCF model—especially for startups or high-growth businesses.

There are a couple of ways to calculate it, but the idea is simple:
📍 Businesses don’t just stop one day—we just need a logical way to estimate the value beyond our 5 year projection.