Which factor affects the calculation of the terminal value in a company's financial analysis?

The terminal value is a critical component in the discounted cash flow (DCF) valuation model, as it represents the present value of all future cash flows of a company beyond a certain point, typically the end of the forecast period. The correct answer refers to the company’s terminal multiple, which is essential in estimating the terminal value.

The terminal multiple is derived from comparable companies and reflects the market's valuation of similar businesses. It is often based on financial metrics such as earnings or revenue and provides a way to project the company's value at the end of the explicit forecast period. By applying a terminal multiple to the appropriate financial metric (like EBITDA or earnings), analysts can effectively estimate what the company’s worth would be in the future.

In contrast, while factors like annual revenue growth rate may inform the company's future performance and cash flow projections, they do not directly determine the terminal value calculation. Market capitalization reflects the company's overall market value at a given point in time but is not used in the terminal value calculation itself. Brand recognition can influence company performance and growth, but it is more of an intangible asset impacting overall business strategy rather than a direct factor in calculating terminal value. Thus, the company’s terminal multiple is the basis on which the terminal value is calculated,