Terminal value

The value of everything beyond the explicit forecast, collapsed into a single figure at the end of it.

A final-year free cash flow of ₹400 crore, growing at 5% forever and discounted at 11.5%, gives a terminal value of ₹6,462 crore at that date, which then has to be discounted back to today.

Its size relative to the total is the first sanity check on any model. Where terminal value is 85% of the answer, the explicit forecast is decoration and the valuation is really a single assumption dressed up as analysis.

Two methods dominate, and disagreement between them is informative rather than annoying.

Two disciplines keep it honest. Compute what proportion of the total value it represents, because above roughly 80% the explicit forecast is decoration. And back out the multiple it implies on the terminal year's earnings, then ask whether a mature business in this industry has ever traded there.