What should the financial year represent when concluding a model?

The financial year that a model concludes with should represent a steady state to ensure valuation accuracy. This approach allows for a more reliable assessment of a company’s financial performance as it provides a normalized view of ongoing operations, free from the fluctuations caused by extraordinary events or peaks in performance.

Choosing a steady state year means accounting for average revenue, expenses, and growth rates that reflect the company's typical performance over time. This is essential for accurate forecasting and valuation purposes, as it helps analysts make informed decisions based on sustainable earnings rather than transient peaks or troughs.

The other options suggest focusing on extremes of financial performance, which may lead to misleading conclusions. A peak performance year may provide an inflated valuation that doesn't consider the likelihood of performance normalizing in subsequent periods. Similarly, a year focused on significant growth might reflect an unsustainable trajectory, and a recession year would typically depict financial challenges that could unduly skew the valuation. Thus, using a steady state year is key to deriving a sound and realistic financial model.