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Forward Multiple

Definition - What does Forward Multiple mean?

The forward multiple refers to the multiple applied to a company's next twelve months EBITDA or EBIT. It is based on a company's predicted earnings for the next year, and therefore more subject to error than the TTM multiple. It is often used to assess the valuation of high growth companies, which expect their future earnings to be better than the last twelve months.

Divestopedia explains Forward Multiple

The forward multiple is particularly useful for companies that have completed a major transaction, such as the acquisition of another company or the launch of a new product within the last twelve months. Their TTM EBITDA would not reflect this transaction's results, but their next 12 months projection would make the forward multiple applied to such projection more relevant.

As well, companies that are coming off a particularly bad year or downcycle may prefer the forward multiple if the next twelve months are looking up. If the company has a fuller services or project backlog looking into the future, it may be best to evaluate its valuation using a forward multiple.

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