What Does
NTM EBITDA Mean?
NTM EBITDA refers to a company’s EBITDA over the next twelve months (NTM) of operations. This is a key financial measure that a buyer considers when conducting the valuation of a company. It is particularly important for companies in high growth industries, or for those that have experience a catalyst such as an acquisition or the introduction of a new product. This catalyst may have occurred any time over the last 12 months; therefore computing the NTM EBITDA would not only consider the future performance of the company, but it would also incorporate the future impact of the catalyst.
Divestopedia Explains NTM EBITDA
Computing the NTM EBITDA requires a seller to prepare a financial forecast. When forecasting, it is best to provide various scenarios and estimate NTM EBITDA as a range say from base to best. The assumptions that go into the calculation should be well supported and allow the buyer to conduct sensitivity analysis on them.
The buyer will estimate the multiple it is paying on NTM EBITDA to assess the reasonability of the purchase price. For example, if the buyer estimates the enterprise value (EV) at $50 million for a target that is doing $5M of TTM EBITDA, this would result in a multiple of 10X. This multiple may be unreasonable in the industry that the target operates in. However, the target may have just introduced a high margin new product that is projected to double EBITDA in the next twelve months. This may justify the buyer’s purchase price as it would represent 5X NTM EBITDA, which may be more in line with comparables.