What is a potential issue with basing terminal multiples on current public company multiples?

Answer hidden.


The issue with basing terminal multiples 5-10 years out off of where public companies are trading today is that the median multiples may change drastically in 5-10 years.

The Multiples Method of determining Terminal Value is particularly problematic when dealing with cyclical industries such as construction, semi-conductors, or airlines.

To try and mitigate these issues, you usually look at a wide range of terminal multiples to see how the valuation changes.