Rethinking Exit Multiples In High-Growth Company Valuations

CFA Institute Contributors5.65K FollowersFollow5ShareSavePlay(7min)CommentsSummaryIn high-growth company valuations, terminal (exit) assumptions often account for a large share of enterprise value.A standard income approach using a five-year explicit forecast plus a Gordon growth terminal value assumes the company reaches “stable growth” by year five.Based on both data and experience, investors, analysts, and valuation specialists should avoid simply applying a median multiple in the exit terminal year. courtneyk/iStock via Getty Images By Alessandro Niglio, CFA, Konstantinos Oikonomou, CFA and Marco Maresca What This Analysis Delivers A framework for deriving exit multiples from long-run growth, return, and discount rate assumptions embedded in discounted cash flow (DCF) models. This article was written byCFA Institute Contributors5.65K FollowersFollowCFA Institute is a global community of more than 100,000 investment professionals working to build an investment industry where investors’ interests come first, financial markets function at their best, and economies grow.