Terminal multiple

The terminal multiple is the exit valuation multiple — typically P/E or EV/EBITDA — applied to the final year of an explicit DCF forecast to compute terminal value. It is an alternative to Gordon-growth perpetuity and is often more intuitive because the multiple can be benchmarked against current peer multiples and historical sector norms. Calibration discipline is everything. A terminal multiple that exceeds the current trading multiple bakes in implicit valuation expansion that should be justified by quality, growth, or capital-efficiency improvements visible in the explicit forecast. A terminal multiple below the current trading multiple bakes in compression that should be tied to growth deceleration or competitive erosion. We anchor terminal multiples to archetype norms: hyper-growth businesses converge to mature-software multiples (18–24x P/E) by year ten, mature compounders hold near current levels (16–22x), cyclicals revert to mid-cycle multiples (12–16x), and capital-intensive industrials sit lower (10–14x). The strict discipline is internal consistency: a Gordon-growth DCF and an exit-multiple DCF on the same forecast should produce comparable answers, and any large gap should be reconciled in the model documentation.