Note: The above calculation approach basically includes future cash flows in perpetuity in the business valuation calculation which may not always be suitable because buyers of small to medium enterprises which have a reasonably high rate of failure and therefore a higher risk associated with acquiring or investing in them tend to require a much shorter period for making their money back in order for it to be worthwhile investing in such business acquisitions. Terminal values should therefore only be used in cases where there is a lower level of risk due to established profit history and relatively low uncertainty with regards to the consistency of future cash flows.

CopyFinancial > Note: The above calculation approach basically includes future cash flows in perpetuity in the business valuation calculation which may not always be suitable because buyers of small to medium enterprises which have a reasonably high rate of failure and therefore a higher risk associated with acquiring or investing in them tend to require a much shorter period for making their money back in order for it to be worthwhile investing in such business acquisitions. Terminal values should therefore only be used in cases where there is a lower level of risk due to established profit history and relatively low uncertainty with regards to the consistency of future cash flows.