One aspect of DCF valuation that both trips up and troubles those using it is the role of the terminal value. If you are valuing a business, it is almost inevitable that the terminal value will be a substantial contributor to the value that you estimate for the value today, accounting for 60 percent, 70 percent, or even more than 100 percent of the current value. Rather than view that as a weakness of the model, as some are apt to do, consider it a reflection of how you make money as an equity investor in a business.
