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Lesson 9 of 9 · 13 min
Current, past and forward multiples, and terminal values
Current multiples can be distorted by one-off items and the cycle, past multiples show trends against a company's own history and its peers, and forward multiples are used both for comparison and to set a terminal value inside a present value model.
In short
- Always remember the peer group itself may be mispriced: combine relative valuation with present value methods.
- Current multiples use the latest period, so non-recurring items, accounting choices and the cycle can distort them (like a base-year effect in a DCF).
- Past multiples: compare with the company's own history (trends of improvement or deterioration) or with peers' historical averages (relative performance under similar conditions). Business changes can make history a poor guide.
- Forward multiples (FY1, FY2) use forecasts; they can be meaningful when current earnings are negative.
- Terminal value = multiple × forecast fundamental at the horizon, discounted at the required return. Choose a multiple from peers that look like the company will look then (mature, slower growth).
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