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LTM vs NTM

Comparing the LTM and TTM methods of valuation

LTM vs NTM Valuation Multiples

Financial analysts use LTM vs NTM and a number of valuation multiples in looking at corporate deals. In the world of M&A, 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.

 

Diagram of LTM vs NTM

 

LTM stands for Last Twelve Months and TTM stands for Trailing Twelve Months, which is basically the historic or backward-looking multiple. It uses data points like EPS, EBITDA, revenue, etc. of the last twelve months of operation. The reason for using past period data is that it is accurate and hence more reliable. LTM is generally used for businesses with uniform growth prospects.

However, when the company’s performance depends on its cyclical nature or it is technology-savvy, growth prospects differ. In such case, historical multiples don’t hold true. As a result, NTM, or Next Twelve Months, and other forward multiples makes more sense as it gives a picture of what the company is planning 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 an expected performance of 85.7% in NTM. A similar forecast can be seen for the company’s revenue.

 

LTM vs NTM Valuation Multiples

 

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.

 

FORECAST MULTIPLES (MEAN)  
LTMNTM
EV/Revenue3.72.73
EV/EBITDA42.2623.42
EV/EBIT160.3594
PE217.19142.4
PEG8.382.21
Dividend Yield00
FCF Yield0.392.18
Price/Sales3.632.68
Price/Cashflow35.0223.8
Price/Book Value23.417.3
Return on Assets2.834.41
Return on Equity12.9118.2
Return on Invested Capital11.6917.22

 

Analysis of Valuation Multiples

 

EV/Revenue

It is one of the most popular multiples used across industries, as it is difficult to manipulate the revenue numbers. The EV/Revenue multiple becomes relevant especially when a company reports a negative EBITDA, as the multiple EV / EBITDA will not be relevant. Start-up companies in the e-commerce sector will generally report a negative EBITDA in their initial years. Thus, EV / Revenue is a poor measure as two companies with the same revenue can show a large difference in the way it is operated, which reflects in their EBITDA.

 

EV/EBITDA

EV/EBITDA is one of the most commonly used multiples and it acts as a proxy for free cash flows (before capital expenditures). Learn more about EBITDA.

 

EV/EBIT

EBIT  (also called Operating Income) is derived after adjustment of depreciation and amortization, as it reflects real expenses and considers wear and tear of a firm’s assets, which needs to be replaced by the company. In 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

It 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 doesn’t take into account differences in profitability. Learn more about calculating the Return on Capital Employed (ROCE).

 

P/E

The P/E multiple 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 ratio 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)™ 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:

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