Financial Modeling
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Since the model requires an assumption of that year's stock price, usually based on PE ratio, but however, you do not yet know your EPS, which is influenced by the entire model (look at our free Circular Reference exhibit and video course explaining interest, same logic!). Thus, to avoid circs for this part, we use trailing PE (based on last year's or LTM EPS) - just make sure the assumed PE ratio is reasonable. By using last year's EPS, this is akin to using beginning debt/cash balance to calc interest, thus avoiding circs. Read More