Apple's EV/EBITDA and revenue growth, live
AAPL — EV/EBITDA, Revenue Growth. Open AAPL on the Ledge to see current values.
Two ways to calculate terminal value
| Method | Formula | Best Used When |
|---|---|---|
| Gordon Growth | TV = FCFₙ × (1 + g) / (WACC − g) | Stable, mature businesses |
| Exit Multiple | TV = EBITDAₙ × Exit EV/EBITDA | When market comparables are available |
The Gordon growth terminal value formula
Gordon Growth TV = FCFₙ × (1 + g) / (WACC − g)
Why perpetual growth cannot exceed the economy
The perpetual growth rate (g) should NEVER exceed long-term GDP growth (2–3%). A company growing at 4% forever would eventually become larger than the entire economy — which is impossible.
Cross-checking with the exit multiple method
Cross-check both methods. If Gordon Growth gives you $4B and exit multiple gives $2.5B, your growth assumptions may be too aggressive. Convergence between methods increases confidence.
Exit Multiple TV = EBITDAₙ × Exit Multiple
Compare terminal value from both methods
Calculate terminal value for a company using both methods. If they diverge by more than 30%, investigate which assumptions are driving the gap.
Whether a 75% terminal-value weight is normal
Your DCF shows 75% of the total value comes from terminal value. Is this normal?
What heavy terminal value says about your model
The most honest way to describe the value split
Your DCF: explicit 10-year forecast gives $40/share of value. Terminal value gives $110/share. Total $150. What's the most honest thing to say about this valuation?
Check your understanding
Sit with the ideas.
A DCF model projects Year 10 FCF of $500M. WACC is 9% and terminal growth rate is 2.5%. Using the Gordon Growth Model, what is the terminal value?
Why: