Resources / Glossary / NTM multiple

NTM multiple.

Aka. Next-twelve-months multiple · forward multiple · NTM EV/EBITDA
All terms

What is an NTM multiple?

An NTM multiple — next twelve months — values a company against its forecast earnings for the coming year rather than its reported earnings from the past year. Where an LTM (last twelve months) multiple divides enterprise value by trailing EBITDA, an NTM multiple divides it by projected EBITDA for the next twelve months.

Because markets price businesses on where they are going, not where they have been, the forward multiple is often the more relevant lens — especially for growing companies. A business expected to grow earnings sharply will show a much lower NTM multiple than LTM multiple, because the denominator is the larger future number. The forward figure can make an apparently expensive company look reasonable, and vice versa.

The trade-off is that the NTM denominator is a forecast, not a fact. An LTM multiple rests on reported, auditable results; an NTM multiple rests on estimates that may not come true. The forward view is more relevant but less certain.

How NTM multiples are used

The forward multiple shows up wherever growth matters to valuation:

  1. Comparing growth companies. Two businesses can trade at the same trailing multiple but very different forward multiples if one is growing faster — the NTM view reveals which is actually cheaper relative to its trajectory.
  2. Building comp sets. Trading comps are often presented on both LTM and NTM bases, so a buyer can see how the peer group is priced against both history and expectation.
  3. Sanity-checking entry price. An entry multiple that looks rich on trailing earnings may look fair on next-year earnings if the growth is credible — but only if the forecast is sound.
  4. Reconciling the two. The bridge between LTM and NTM multiples is, in effect, expected growth. A wide gap is a signal to interrogate the forecast that drives it.

The discipline is to treat the forecast underneath an NTM multiple with the same skepticism as any projection. A forward multiple is only as trustworthy as the estimate in its denominator.

NTM versus LTM, and the forecast risk

LTM and NTM multiples are two views of the same business separated by the question of growth. LTM is backward-looking and verifiable; NTM is forward-looking and relevant. Neither is wrong — they answer different questions, and serious analysis usually looks at both.

The risk lives entirely in the NTM denominator. A flattering NTM multiple can be manufactured simply by adopting an optimistic forecast: assume aggressive growth and the forward multiple compresses, making the price look attractive. The honest use of NTM multiples therefore depends on the credibility of the underlying projection — which is why the forecast, not the multiple, is where the scrutiny belongs.

Frequently asked.

4 questions
01 What is the difference between an NTM and an LTM multiple?

An LTM (last twelve months) multiple uses trailing, reported earnings in the denominator; an NTM (next twelve months) multiple uses forecast earnings for the coming year. LTM is verifiable but backward-looking; NTM is relevant but rests on an estimate.

For a growing company, the NTM multiple is lower than the LTM multiple, because the forward earnings base is larger. The size of that gap reflects the expected growth.

02 Why do investors prefer forward multiples for growth companies?

Because value depends on future earnings, and for a fast-growing company the trailing figure understates the business by the time of the transaction. A forward multiple captures the near-term growth that a trailing multiple ignores, giving a fairer read on whether the price is reasonable.

For a stable, slow-growing business the two multiples are close, so the distinction matters most precisely where growth is large.

03 Can an NTM multiple be manipulated?

Yes, because it depends on a forecast. An optimistic projection inflates the next-twelve-months earnings base and compresses the forward multiple, making a company look cheaper than it is. The multiple itself is only as honest as the estimate behind it.

That is why the scrutiny in any NTM-based valuation belongs on the forecast — its assumptions, its track record against prior estimates — rather than on the multiple, which is just arithmetic applied to that forecast.

04 Where does the NTM earnings forecast come from?

For public companies it is typically a consensus of analyst estimates; in a private deal it comes from management projections, often re-cut by the buyer's own model. Either way it is an estimate that will be tested against reality over the following year.

Keeping the forecast that underlies an NTM multiple linked to its assumptions — and then tracked against what actually happens — is the kind of living analysis VectorShift keeps queryable, so a forward multiple can be revisited rather than taken on faith.

Related terms

Rvaluation

Run-rate EBITDA

EBITDA projected forward as if current conditions and recent actions <em>applied for a whole year</em>, rather than what was historically reported.

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Evaluation

Exit multiple

The valuation multiple a business is sold at on exit — the assumption that, set against the entry multiple, drives much of a deal's <em>projected return</em>.

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Pvaluation

Precedent transactions

Valuing a business by the multiples paid in past acquisitions of similar companies — a relative method that captures the <em>control premium</em> trading comps miss.

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Nvaluation

Normalized earnings

A company's earnings restated to strip out one-off, non-operating, and owner-specific items — the <em>sustainable</em> baseline a buyer actually values.

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Wvaluation

Working capital adjustment

A post-closing true-up of the purchase price for the gap between delivered working capital and an agreed <em>target</em>, so the buyer gets a normal level.

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Lvaluation

LTM multiple

A valuation multiple struck on the <em>last twelve months</em> of actuals — enterprise value divided by trailing EBITDA, revenue, or another metric.

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