Measuring residual value for the discounted cash flow method

When valuing a business using the discounted cash flow method, residual (or terminal) value can be a major part of the valuation puzzle. Business valuation experts typically consider the capitalization of earnings method and the market approach when estimating residual value. Either (or both) may be appropriate, depending on the nature of the business, purpose of the valuation, reliability of the company’s financial projections and availability of market data. Like annual cash flows over the discrete projection period, residual value is discounted to present value to arrive at the value of a business under the discounted cash flow method. Contact us for more information.