What Does TTM Multiple Mean?
The TTM multiple refers to the multiple applied to the trailing or last 12 months of a specific financial metric such as the revenue, net earnings, or EBITDA of a company. Buyers typically use the TTM multiple to assess the reasonability of a company's valuation. While it does not mean much in isolation, the TTM multiple is very useful as a comparison benchmark against other current transactions in the same industry where the company operates.
Divestopedia Explains TTM Multiple
The TTM multiple is more useful for companies that are stable, since a buyer can assume that the last 12 months of performance are indicative of future performance. For companies that are in growth mode, the TTM multiple may unfairly penalize them as it does not account for increasing operating earnings resulting from future growth.
The TTM multiple can be difficult to compare because companies often report the last 12 months earnings differently. This is because different accounting policies are used which can impact earnings, or EBITDA can be displayed more favorably by adding back non-operating expenses that are in fact part of recurring operations. Therefore, when conducting a comparison of value by using the TTM multiple, sellers and buyers must be careful to fully itemize the financial metric (i.e. EBITDA) against which the multiple is being applied.