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Terminal Value Calculator | Gordon growth terminal value

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Estimate a company's terminal value with the Gordon growth model from its final cash flow, perpetual growth rate and discount rate, with the r > g condition enforced. The majority of any DCF valuation — essential for finance coursework and analysis.

Last updated: June 2026 · Free · No sign-up required

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How the Terminal Value Calculator works

Every result on this page comes from a real formula — TV = FCF × (1 + g) ÷ (r − g), requires r > g — computed live in your browser the moment you press the button.

For context, the sections beneath the calculator include typical values, a worked example you can recompute by hand, and an FAQ covering the practical details of terminal value calculator.

Quick reference

FCF $1M, r = 9%gTerminal value
1%$12.63M
2%$14.57M
2.5%$15.77M
3%$17.17M

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Includes the formula and step-by-step explanation so you understand the math, not just the answer.

Interpretation guide

CheckGuideline
g vs GDPKeep g ≤ long-run nominal GDP growth (~2–3%)
r − g spreadSmall spreads inflate TV — sanity-check under 4%
TV share of DCFOften 60–80% of total value — sensitivity-test g and r

lightbulb Valuing a mature manufacturer past year 5

A DCF model forecasts final-year free cash flow of $4.2M, then assumes 2.5% perpetual growth against a 9% WACC (discount rate). The Gordon growth model values everything from year 6 onward: TV = 4.2 × 1.025 ÷ (0.09 − 0.025).

Result: TV = 4.305 ÷ 0.065 = $66.23M — the company's value at the end of year 5. Discounted back to today at 9% over 5 years (÷ 1.09⁵ = ÷ 1.5386), that's $43.05M in present value.

What this means: Two lessons in one number: the terminal value usually dominates a DCF (often 60–80% of total value), and it's worth far less today than at the forecast horizon — discounting cut $66.23M to $43.05M. Always sensitivity-test g and r, because a 1-point change in either swings the answer dramatically.

Formula & methodology

Formula: TV = FCF × (1 + g) ÷ (r − g), requires r > g

How the Gordon growth terminal value works

Beyond the explicit forecast, the model assumes free cash flow grows at a constant perpetual rate g forever. That infinite stream has a closed-form value: TV = FCF × (1 + g) ÷ (r − g), where FCF is the final forecast-year cash flow and r is the discount rate (usually WACC).

  • Take the final-year free cash flow.
  • Set g conservatively — at or below long-run GDP growth (~2–3%).
  • Set r above g; the page enforces r > g since equal values imply infinite worth.
  • Discount the result back to the present before adding it to your DCF.

Because the terminal value is often 60–80% of total value, always sensitivity-test: nudge g and r by a point each and watch how far the answer moves before trusting it.

Authoritative source: Wolfram MathWorld

Frequently asked questions

What is terminal value?
The Terminal Value Calculator is free, private, and accurate: it runs entirely in your browser (no uploads, no accounts), applies the standard calculation, and explains each step so you can verify the result. Calculates terminal value using TV = FCF × (1 + g) ÷ (r − g), requires r > g, instantly in your browser. There is no limit on usage, and it works on any device.
What growth rate should I use?
Use a perpetual growth rate that is conservative and sustainable — typically 2–3% for mature economies, roughly tracking long-run GDP or inflation growth. The terminal value is highly sensitive to g: raising it from 2% to 3% can increase the terminal value by 20% or more. Never use a growth rate at or above the discount rate, which breaks the formula.
Why must r be greater than g?
The Gordon growth formula TV = FCF × (1 + g) ÷ (r − g) divides by (r − g). If g equals r, the denominator is zero and the value is infinite — a company growing forever at the discount rate would be worth everything. If g exceeds r, the formula returns a negative, nonsensical value. The condition r > g ensures a finite, positive terminal value.
Is the result today’s value?
The terminal value is the value at the END of the explicit forecast period, not today. To use it in a DCF valuation, you must discount it back to the present along with the projected cash flows. The calculator returns the terminal value at the forecast horizon; discount it by (1 + r)^n where n is the number of years to the horizon.
What about the exit multiple method?
The Terminal Value Calculator uses the standard TV = FCF × (1 + g) ÷ (r − g), requires r > g. You enter your values, and the calculator applies the formula step by step, showing the working so you can verify the math and understand how the result is derived rather than trusting a black box.
Why is terminal value usually most of a DCF's answer?
The explicit forecast only covers 5–10 years; the terminal value captures every cash flow after that, forever. For a stable company those distant years dominate the math — typically 60–80% of total value. That's why small changes in the growth or discount rate move valuations so dramatically.
What happens when the growth rate gets close to the discount rate?
The denominator (r − g) shrinks and the value explodes: at g = 8% and r = 9%, next-year FCF is multiplied by 100. Economically that's nonsense — no company outgrows the economy forever — so keep g well below r, ideally at or under long-run GDP growth of 2–3%.
Is the terminal value today's value?
No — it's the value at the END of your explicit forecast period. To use it in a DCF you must discount it back to the present along with the forecasted cash flows: a $66.23M terminal value five years out at 9% is only $43.05M today. The page shows both figures.
What's a defensible perpetual growth rate?
At or below long-run nominal GDP growth — about 2–3% for mature economies — since a company compounding faster than the economy forever would eventually become the economy. Mature, stable businesses sit near inflation; only structural growers justify the top of the range, and never above it for long.

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