When calculating forward multiples for comparable companies, what is the recommended approach?

The recommended approach when calculating forward multiples for comparable companies involves using each company's current equity or enterprise value. This is because forward multiples are typically calculated based on the expected future financial performance of companies, which includes projecting metrics like revenue or EBITDA. By using the current equity or enterprise value as the denominator, you ensure that the multiples reflect the most current market valuation while allowing for comparisons based on anticipated future performance.

This approach maintains relevance and accuracy, aligning the valuation with market conditions, and provides a more meaningful context for investment decisions. It allows analysts to gauge how much investors are willing to pay today for expected future cash flows, making it a crucial step in valuation analysis.

Other methods focusing solely on projected equity value, future performance predictions, or previous fiscal year metrics would not adequately capture the current market perceptions, ultimately leading to less reliable multiples for comparison.