Which input does the Terminal Value via the multiple method rely on?

Which input does the Terminal Value via the multiple method rely on?

• A. LTM Revenue multiplied by multiples
• B. LTM EBITDAn multiplied by a chosen multiple
• C. FCFn multiplied by the chosen multiple
• D. EBITDA divided by multiple

Answer: (B)

Terminal value using the multiple method comes from applying a market-based exit multiple to a stable earnings metric in the final forecast year. The input you multiply by the chosen multiple is the metric itself—most commonly the final year's EBITDA (often normalized as EBITDAn). This reflects how buyers price a business: a multiple is applied to a representative earnings figure to estimate value. So the terminal value is created by LTM EBITDA (normalized) times the selected multiple. Using revenue as the base is less standard for this method, and using free cash flow would align more with other valuation approaches (like the perpetuity growth method). Dividing EBITDA by the multiple would invert the concept, not produce the terminal value.

Terminal value using the multiple method comes from applying a market-based exit multiple to a stable earnings metric in the final forecast year. The input you multiply by the chosen multiple is the metric itself—most commonly the final year's EBITDA (often normalized as EBITDAn). This reflects how buyers price a business: a multiple is applied to a representative earnings figure to estimate value.

So the terminal value is created by LTM EBITDA (normalized) times the selected multiple. Using revenue as the base is less standard for this method, and using free cash flow would align more with other valuation approaches (like the perpetuity growth method). Dividing EBITDA by the multiple would invert the concept, not produce the terminal value.