Terminal value is the share of a discounted-cash-flow valuation that stands in for every year of cash flow past the explicit forecast period, collapsed into a single value as of the end of that forecast — and for most DCF models it is the majority of the total value.
Terminal value is the piece of a discounted cash flow that stands in for every year past the explicit forecast, collapsed into one figure as of the end of that forecast — and in most DCF models it is the majority of the total value, not a footnote. Formal DCF work of this kind shows up in Canada mainly in larger sponsor-led deals, fairness opinions and dissent proceedings, and where a Chartered Business Valuator issues the resulting conclusion of value it is governed by CBV Institute’s Practice Standards 100 (Valuation Conclusions and Valuation Reports), 110 (Report Disclosure) and 120/130 (Scope of Work and File Documentation), which set “the minimum requirements for a valuator to establish a credible and properly supported conclusion of value”, effective for engagements beginning on or after 1 January 2026 (CBV Institute).
That is a different world from the small and lower-mid-market Canadian deals this hub’s own market data covers: every published pricing convention on deavo.ai — SDE multiples, EBITDA multiples, enterprise-value-to-EBITDA — is a multiple, not a discounted cash flow, and no Canadian source in wide use publishes a market terminal growth rate or exit multiple to plug into one. Whichever mechanism a deal team uses — a perpetuity growth model or an exit-multiple method — the growth rate and discount rate are the deal team’s own assumptions, not a looked-up market fact, which is exactly why CBV Institute’s standards require the assumptions to be disclosed and documented.
A sponsor’s five-year DCF forecasts Year-5 free cash flow at $2.0M. The deal team sets, for this scenario, a 12% discount rate and a 2% long-run growth rate, and applies the perpetuity growth method: terminal value = $2.0M × 1.02 ÷ (0.12 − 0.02) = $2.04M ÷ 0.10 = $20.4M. Discounted back five years at 12% (÷ 1.12⁵ = ÷ 1.7623), the present value of the terminal value is about $11.58M. If the five explicit forecast years contribute a further $4.2M of present value, terminal value is carrying roughly 73% of the $15.78M total — which is the standard result, and why the assumptions behind it deserve more scrutiny than the forecast years do.
See also: Weighted average cost of capital · Enterprise value.
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