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Terminal Value (Exit Multiple) Calculator

Calculate terminal value using exit multiple method (EV/EBITDA or EV/Revenue) for DCF valuation.

Terminal Value (Exit Multiple) Calculator

Calculate terminal value using exit multiple method (EV/EBITDA or EV/Revenue) for DCF valuation.

Input your terminal value parameters

For present value calculation

Formula

Terminal Value from EBITDA = Final Year EBITDA * Exit Multiple (EV/EBITDA)

Terminal Value from Revenue = Final Year Revenue * Exit Multiple (EV/Revenue)

Average Terminal Value = Average of Available Estimates

Present Value of Terminal Value = Terminal Value / (1 + WACC)^n

Where n = number of years in forecast period (typically 5)

The exit multiple method calculates terminal value by applying a valuation multiple to the final year's financial metric, assuming the company would be valued at exit using market multiples. This method is commonly used when comparable company multiples are reliable and provides a market-based approach to terminal value estimation.

Steps

  • Enter final year EBITDA or revenue from forecast period.
  • Enter corresponding exit multiple (EV/EBITDA or EV/Revenue).
  • Optionally enter WACC to calculate present value.
  • Review terminal value and present value calculations.

Additional calculations

Enter your terminal value parameters to see additional insights.

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The Complete Guide to Terminal Value: Exit Multiple Method

A comprehensive look at calculating terminal value using exit multiple method (EV/EBITDA or EV/Revenue) for DCF valuation.

Table of Contents: Jump to a Section

Understanding Exit Multiple Method

The exit multiple method estimates terminal value by applying a valuation multiple to the final year's financial metric.

Exit Multiple Selection

Select exit multiples based on comparable companies, precedent transactions, or industry benchmarks.

Calculation Steps

Terminal Value = Final Year Metric * Exit Multiple

Exit Multiple vs Gordon Growth

Exit multiple provides a market-based approach, while Gordon Growth assumes perpetual growth. Many analysts use both for triangulation.

Best Practices

Best practices include using multiple multiples for triangulation, selecting appropriate comparables, and performing sensitivity analysis.

Conclusion

The exit multiple method provides a market-based approach to estimating terminal value by applying valuation multiples to final year financial metrics. This method is particularly useful when comparable company multiples are reliable and provides an alternative to the Gordon Growth Model. Using multiple exit multiples and comparing to Gordon Growth results helps ensure robust terminal value estimates.

FAQs

What is terminal value (Exit Multiple Method)?

Terminal value using the exit multiple method estimates the company's value at the end of the forecast period by applying a valuation multiple (typically EV/EBITDA or EV/Revenue) to the final year's financial metric. It assumes the company would be valued at exit using market multiples from comparable companies.

How is terminal value calculated using exit multiples?

Terminal Value = Final Year Financial Metric * Exit Multiple. For example: Terminal Value = Final Year EBITDA * EV/EBITDA Multiple, or Terminal Value = Final Year Revenue * EV/Revenue Multiple. The exit multiple is typically derived from comparable company analysis or industry benchmarks.

Which multiple should I use: EV/EBITDA or EV/Revenue?

EV/EBITDA is most common for profitable companies with significant D&A, as EBITDA normalizes for capital structure and accounting differences. EV/Revenue is useful for early-stage companies, unprofitable companies, or revenue-focused valuations. Use the multiple most relevant to the industry and company profitability stage.

How do I select an appropriate exit multiple?

Select exit multiples based on: comparable company trading multiples, precedent transaction multiples, industry benchmarks, company growth prospects (higher growth commands higher multiples), profitability levels, and market conditions. Median multiples from comparable companies are commonly used as a starting point.

How is present value of terminal value calculated?

Present Value of Terminal Value = Terminal Value / (1 + WACC)^n, where n is the number of years in the forecast period (typically 5). This discounts the terminal value (which is in year n) back to today's present value, consistent with discounting forecast period cash flows.

How does exit multiple method differ from Gordon Growth?

Exit multiple method applies a market multiple to a financial metric, assuming the company is sold at that multiple. Gordon Growth assumes perpetual growth at a constant rate. Exit multiple is preferred when: comparable multiples are reliable, the company may be sold, or growth is difficult to estimate. Many analysts use both methods for triangulation.

What if I use multiple exit multiples?

Using multiple exit multiples (e.g., both EV/EBITDA and EV/Revenue) provides triangulation and helps assess valuation range. Calculate terminal value using each multiple, then average or use a range. This approach provides more robust valuation estimates and helps identify outliers or unrealistic assumptions.

Should exit multiple match trading multiples?

Exit multiples can match current trading multiples, but often analysts apply a discount (5-15%) to reflect the uncertainty of future market conditions, or use precedent transaction multiples which include control premiums. The choice depends on whether you're assuming a strategic sale (higher multiples) or market-based exit (current trading multiples).

How sensitive is terminal value to exit multiple?

Terminal value is highly sensitive to exit multiple assumptions, often representing 50-80% of total DCF value. A 1x change in EV/EBITDA multiple can result in significant valuation differences. This is why exit multiple selection requires careful justification and sensitivity analysis to understand valuation range.

Can I use different multiples for different scenarios?

Yes, using different multiples for different scenarios (base case, upside, downside) provides a range of terminal values and helps assess valuation uncertainty. This approach is particularly useful in sensitivity analysis and when presenting valuation ranges to stakeholders.

Summary

This tool calculates terminal value using exit multiple method (EV/EBITDA or EV/Revenue) for DCF valuation.

Outputs include terminal value from each multiple, average terminal value, present values, interpretation, recommendations, an action plan, and supporting metrics.

Formula, steps, guide content, related tools, and FAQs ensure humans or AI assistants can interpret the methodology instantly.

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Terminal Value (Exit Multiple) Calculator

Calculate terminal value using exit multiple method (EV/EBITDA or EV/Revenue) for DCF valuation.

How to use Terminal Value (Exit Multiple) Calculator

Step-by-step guide to using the Terminal Value (Exit Multiple) Calculator:

  1. Enter your values. Input the required values in the calculator form
  2. Calculate. The calculator will automatically compute and display your results
  3. Review results. Review the calculated results and any additional information provided

Frequently asked questions

How do I use the Terminal Value (Exit Multiple) Calculator?

Simply enter your values in the input fields and the calculator will automatically compute the results. The Terminal Value (Exit Multiple) Calculator is designed to be user-friendly and provide instant calculations.

Is the Terminal Value (Exit Multiple) Calculator free to use?

Yes, the Terminal Value (Exit Multiple) Calculator is completely free to use. No registration or payment is required.

Can I use this calculator on mobile devices?

Yes, the Terminal Value (Exit Multiple) Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.

Are the results from Terminal Value (Exit Multiple) Calculator accurate?

Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.