Method comparison

Gordon Growth vs Exit Multiple

Both terminal-value methods are defensible, both are taught in standard valuation texts, and both will give different answers. The discipline is to compute both, reconcile, and document which you rely on for the headline number.

Direct answer

Use both, reconcile. Gordon Growth anchors terminal value to long-run macroeconomic logic; the exit multiple anchors it to today's market price for similar businesses. If the two diverge by more than 15 to 20 percent, one of the assumptions is doing most of the work. M&A models typically lead with exit multiple and cross-check with Gordon Growth; equity research models typically lead with Gordon Growth and cross-check with exit multiple.

Side-by-side

Seven dimensions, two methods

Dimension	Gordon Growth	Exit Multiple
Anchor	Long-run macroeconomic growth + cost of capital	Today's market-clearing price for similar businesses
Critical input	Perpetuity growth rate g (must be < WACC)	Exit EV/EBITDA multiple from comp set
Sensitivity	Acute as g approaches WACC; small change in g moves TV significantly	Linear in the multiple; small change in multiple moves TV proportionally
Best when	Mature, stable business; long forecast horizon; macro logic defensible	M&A or LBO context; observable comps; transaction multiples available
Weak when	Business not in steady state; growth and reinvestment assumptions inconsistent	Comp set is thin or mismatched; market regime today is atypical
Implicit assumption	Constant growth g forever, with consistent reinvestment to support it	Today's market multiple persists n years out at the same valuation regime
Default in	Academic finance, equity research, CFA curriculum	M&A advisory, leveraged buyout modelling, transaction services

Reconciliation

How to read a divergence between the two methods

Exit > Gordon by 20% or more

The exit multiple is pricing in more growth than your perpetuity g implies, or the comp set sits in a higher-margin / higher-growth regime than the target. Back-solve g; if it exceeds 4%, the multiple needs to come down.

Gordon > Exit by 20% or more

Either g is too high relative to today's market regime, or the comp set is depressed (cyclical low, sector out of favour). Triangulate against a longer-run multiple or normalised-EBITDA multiple before defaulting to Gordon.

Within +/- 15%

Methods are consistent. Report a range and pick a midpoint, noting both inputs for the audit trail. Reviewers will not push back on a TV range that ties out two independent methodologies.

Source: Editorial rule-of-thumb derived from Damodaran (Investment Valuation, 3rd ed.) and Koller (Valuation, 7th ed.)Last verified June 2026.Heuristic, not a hard rule.

See your divergence live

The calculator shows both terminal values, computes the implied perpetuity growth from your exit multiple, and reports the percent divergence in real time.

Open the calculator