Terminal Multiple Valuation (TMV): Intuition and Calculation
Terminal multiple valuation estimates a continuing value by applying a terminal multiple to a terminal-year earnings or cash flow metric. It is an alternative to the Gordon Growth terminal value.
Exact formula used :
Implementation multiplies the industry P/E by EPS (TTM). The code requires a non-negative EPS and a valid industry P/E.
Notes
- Very useful for industries with many peers
- Sensitive to market sentiment and sector cycles
- More practical than Gordon Growth when growth rates are uncertain
Why This Matters:
TMV provides a market-based terminal value that reflects current industry conditions. It's especially valuable when companies operate in mature industries where peer multiples are stable and meaningful.