Final answer:
Forward-year multiples are preferred over LTM multiples in comparable companies because they provide a clearer picture of a company's future performance.
Step-by-step explanation:
Forward-year multiples are typically preferred to LTM (last twelve months) multiples in comparable companies because they provide a clearer picture of a company's future performance. LTM multiples are based on historical financials, which may not reflect the current or future state of the company. On the other hand, forward-year multiples are based on projected financials, taking into account expected growth and changes in the company's operations.
For example, if a company has recently undertaken significant cost-cutting measures or has started a new revenue-generating project, LTM multiples may not accurately capture the impact of these changes. Future projections, provided by forward-year multiples, can account for these factors and provide a more accurate valuation for the company.
Overall, forward-year multiples allow investors and analysts to make more informed decisions about a company's potential future earnings and value.