when used in a discounted cash flow valuationthe cash flow is projected for each year into the future for a certain number of yearsafter which unique annual cash flows cannot be forecasted with reasonable accuracy. At that pointrather than attempting to forecast the varying cash flow for each individual yearone uses a single value representing the discounted value of all subsequent cash flows. This single value is referred to as the terminal value.When a firm's cash flows grow at a "constant" rate foreverthe present value of those cash flows can be written as: Value = Expected Cash Flow Next Period / (r - g)wherer = Discount rate (Cost of Equity or Cost of Capital) g = Expected growth rate. This "constant" growth rate is called a stable growth rate and cannot be higher than the growth rate of the economy in which the firm operates. While companies can maintain high growth rates for extended periodsthey will all approach "stable growth" at some point in time. When they do approach stable growththe valuation formula above can be used to estimate the "terminal value" of all cash flows beyond.

This definition is in context to Accounting. See more contextual defintions for Terminal Value.