Can anyone explain the reasoning for this? Schweser/CFAI don’t do a good job at it… Terminal value in year n = (LEADING P/E) * (forecasted earnings in year n+1 whereas Termanal value in year n can also = (Trailing P/E) * (forecasted earnings in year n) whats the intuitive reason for n+1 for leading p/e and n for trailing p/e?
Its based purely on the definition of trailing/leading P/Es.
Leading P/E is Price now / earnings in the next period Trailing P/E is Price now / earnings current period
iregula: think about this algebrically: E1 in the denominator of leading P/E should cancel E1 in the numerator (which is written as n+1) to give you the price. On the other hand, Eo in the denominator of a trailing P/E should cancel with this period earnings (written as n) to give you the price. I hope this makes sense.