LTM vs. NTM

LTM vs. NTM Valuation Multiples

Financial analysts use Last Twelve Months (LTM) or Next Twelve Months (NTM) and a number of different valuation multiples when evaluating corporate deals. In the world of M&AMergers Acquisitions M&A ProcessThis guide takes you through all the steps in the M&A process. Learn how mergers and acquisitions and deals are completed. In this guide, we'll outline the acquisition process from start to finish, the various types of acquirers (strategic vs. financial buys), the importance of synergies, and transaction costs, relative valuation serves as one of the fastest ways of valuing a business. However, it becomes very important to understand the metric being used, as the objective is always to compare the companies with a similar data point to avoid inconsistencies in the result.

LTM stands for Last Twelve MonthsLTM (Last Twelve Months)LTM (Last Twelve Months), also known as trailing or rolling twelve months, is a time frame frequently used in connection with financial ratios and TTM stands for Trailing Twelve Months, which is basically the historic or backward-looking multiple. It uses data points like EPSEarnings Per Share (EPS)Earnings per share (EPS) is a key metric used to determine the common shareholder's portion of the company’s profit. EPS measures each common share's profit, EBITDAEBITDAEBITDA or Earnings Before Interest, Tax, Depreciation, Amortization is a company's profits before any of these net deductions are made. EBITDA focuses on the operating decisions of a business because it looks at the business’ profitability from core operations before the impact of capital structure. Formula, examples, revenue, etc. of the last twelve months of operation. The reason for using past period data is that it is based on actual results, and hence more reliable. LTM is generally used for businesses with uniform growth prospects.

However, when the company’s performance is cyclical in nature or is driven by technological savvy, growth prospects differ. In such a case, valuations based on historical multiples may not represent the potential value of a business. As a result, NTM, or Next Twelve Months, and other forward multiples make more sense, as it provides a picture of what the company is projecting to achieve.

Example of LTM vs. NTM Valuation Multiples

The captured data for Amazon below shows how the performance of its EPS changes from 80.4% last year to expected performance of 85.7% in NTM. A similar forecast can be seen for the company’s revenue.

The multiples below show how the difference between the multiples can be based on historical and future projections. Below is the LTM and NTM multiples of Amazon.

Analysis of Valuation Multiples

EV/Revenue

EV/Revenue is one of the more popular multiples used across industries, as it is difficult to manipulate the denominator. The EV/Revenue multipleEnterprise Value to Revenue MultipleThe Enterprise Value (EV) to Revenue multiple is a valuation metric used to value a business by dividing its enterprise value (equity plus debt minus cash) becomes even more relevant when a company has low or negative earnings, such as in early-stage growth companies who aren’t generating much profit.

However, one must be aware that using EV/Revenue multiples will not take into consideration the large differences in the way comparable companies are operated, which reflects in their EBITDA.

EV/EBITDA

EV/EBITDAEV/EBITDAEV/EBITDA is used in valuation to compare the value of similar businesses by evaluating their Enterprise Value (EV) to EBITDA multiple relative to an average. In this guide, we will break down the EV/EBTIDA multiple into its various components, and walk you through how to calculate it step by step is one of the most commonly used multiples and it acts as a proxy for free cash flows (before capital expenditures). Learn more about EBITDAEBITDAEBITDA or Earnings Before Interest, Tax, Depreciation, Amortization is a company's profits before any of these net deductions are made. EBITDA focuses on the operating decisions of a business because it looks at the business’ profitability from core operations before the impact of capital structure. Formula, examples.

EV/EBIT

EBITEBIT GuideEBIT stands for Earnings Before Interest and Taxes and is one of the last subtotals in the income statement before net income. EBIT is also sometimes referred to as operating income and is called this because it's found by deducting all operating expenses (production and non-production costs) from sales revenue. (also called Operating Income)Operating IncomeOperating Income, also referred to as operating profit or Earnings Before Interest & Taxes (EBIT), is the amount of revenue left after is derived after the adjustment of depreciation and amortization, as it reflects real expenses and considers wear and tear of a firm’s assets that need to be replaced by the company. In the case of non-capital intensive companies, such as consulting or technology companies, EBITDA and EBIT are somewhat close, and hence multiples like EV/EBITDA and EV/EBIT are similar.

EV/Capital Employed

This is not one of the very popular ways to calculate multiples but is still used by capital-intensive companies. The invested capital determines the potential earnings, however, it does not take into account differences in profitability. Learn more about calculating the Return on Capital EmployedReturn on Capital Employed (ROCE)Return on Capital Employed (ROCE), a profitability ratio, measures how efficiently a company is using its capital to generate profits. The return on capital (ROCE).

P/E

The P/E multiplePrice Earnings RatioThe Price Earnings Ratio (P/E Ratio) is the relationship between a company’s stock price and earnings per share. It gives investors a better sense of the value of a company. The P/E shows the expectations of the market and is the price you must pay per unit of current (or future) earnings takes into consideration the price in the numerator and earnings per share in the denominator. It is similar to equity value to net income, wherein they are divided by fully diluted shares.

PEG Ratio

The PEG ratioPEG RatioPEG Ratio is the P/E ratio of a company divided by the forecasted Growth in earnings (hence "PEG"). It is useful for adjusting high growth companies. The ratio adjusts the traditional P/E ratio by taking into account the growth rate in earnings per share that are expected in the future. Examples, and guide to PEG is simply the P/E ratio divided by the EPS growth rate. The multiple considers the growth prospects of the company while capturing its growth rate. A company in the growth stage will realize more value than the company that already reached the maturity stage.

Additional Resources

Thank you for reading this guide to LTM vs NTM. CFI offers the Financial Modeling & Valuation Analyst (FMVA)®Become a Certified Financial Modeling & Valuation Analyst (FMVA)® certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:

• CalendarizationCalendarizationThe process of standardizing financial statements is called calendarization. To make comparable companies “equal,” the financial data of each
• Fiscal YearFiscal Year (FY)A fiscal year (FY) is a 12-month or 52-week period of time used by governments and businesses for accounting purposes to formulate annual
• Three Financial StatementsThree Financial StatementsThe three financial statements are the income statement, the balance sheet, and the statement of cash flows. These three core statements are
• Valuation MethodsValuation MethodsWhen valuing a company as a going concern there are three main valuation methods used: DCF analysis, comparable companies, and precedent