Terminal Values

No. It’s not the value of a dead person. Nor of a disease that kills you, um…terminally. Nor is it what Gate 17b at LaGuardia would sell for at auction. Nope. Terminal value is the end value of something. In our little finance-y world here, it applies usually to a stream of cash flows, as in: profits a company makes over time, year after year. And then is sold at the end for some terminal value.

Example:

Serina has a terminal value of setting up a business and growing it. Her hope is that, in her retirement, the business can be run by someone else, but she can still collect on some of the profits while sailing around the world and going to nice restaurants. In other words, she wants to build a business that survives her.

Her shorter-term goals would be raising capital, hiring the right people, developing a business plan, etc. When the business is up and running, her goals will be related to growing it and getting through the inevitable economic hardships. In the end, when she hands the keys to the head office to someone else, she wants that solid business running while she goes out and enjoys herself and secretly laughs at all of the people putting in hours and hours of work while she surfs or watches other people surf and sips margaritas.

Another example:

Sperm Bank of America is storing progeny for the future. It will come out even for 5 years. And at the end of that time period, it will sell for an orgasmically wonderful price of $1,000,000. That million dollars is its terminal, or end, value. And it can be discounted back for time and risk to present value dollars.