Can anyone help me make sense of this formula?
Terminal value in year n= Justified leading P/E X Forecasted earnings in year (n+1)
Why is earnings in n+1 being used?
Can anyone help me make sense of this formula?
Terminal value in year n= Justified leading P/E X Forecasted earnings in year (n+1)
Why is earnings in n+1 being used?
Because you’re using the leading P/E ratio: today’s price divided by next year’s expected earnings.