Academy · Understanding the Engine
Effective Horizon H_eff and the Fiscal Calendar: Aligning Time
A 5-year return and a 2.6-year return are entirely different. The engine computes exactly "how many years actually elapse," rather than vaguely assuming 5.
An "annualized return of 15%" sounds precise, but only if "how many years" is computed correctly. Whether it is 5.0 years or 2.64 years from today to the endpoint makes an enormous difference to the annualized figure. The engine uses a quantity called H_eff (the effective horizon) to pin the time down to a decimal.
What H_eff Is
H_eff = the actual number of years from the analysis date (today) to your chosen earnings endpoint (the end of some fiscal year), computed on the real fiscal calendar rather than blithely assuming 5 years. If the endpoint is FY3 and most of FY1 has already elapsed, H_eff might be only 2.x years.
The Fiscal Calendar: Why Automatic Detection
Different companies have different fiscal year-ends (some December, some June, some September), and the NTM (next twelve months) often straddles two fiscal years. The engine automatically detects the company's fiscal year-end, the most recently reported quarter, and the dates of each fiscal year (FY1-FY5), then aligns the NTM with the annual EPS path to avoid double-counting a quarter (the NTM-to-FY bridge).
“Get the time wrong and even the most precise return rate is wrong.”— Institutional Research Principle
Lock Everything onto the Same H_eff
The engine requires IRR, terminal value, the dynamic P/E range, and dividends/buybacks/dilution all to use the same H_eff—you cannot pair a 3-year IRR with a 5-year terminal value. This "horizon binding" eliminates the most hidden time mismatch in amateur calculations.
How It Shows Up in the Report
The report states the H_eff for the analysis (with a decimal), the endpoint fiscal year, and the NTM EPS used for entry and the endpoint EPS. When you see an H_eff that is not a round 5 years, that is not a bug—it is the engine faithfully reflecting "how far off the endpoint actually is from now."
H_eff is the precise number of years from today to the chosen earnings endpoint; all valuation math is locked onto the same H_eff to avoid time-basis conflicts.
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This article is educational content presenting publicly available investment ideas and methods. It does not constitute investment advice, nor an offer or solicitation for any security. Investing carries risk, and all decisions are your own responsibility.