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Suppose its December 2005 now..and i want to acquire X co. I have forecasts for 2006 also. The asset based model will calculate on basis of 2005 results bcz its a historic measure. The PE ratio will be historic (based on MP in 2005 and EPS in 2005) but the Earnings i will multiply this by will be 2006 forecast or 2005???
and FCF will be 2006,2007, and so on in perpetuity. Am I right??
If you are using the PE ratio, you would multiply by the 2006 earnings.
For FCF calculations you will not be using the PE (you will be discounting the FCF’s) and what they are in future depends on what is in the question – most likely they will be inflating in the future.
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