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NTM EV/EBITDA

Definition - What does NTM EV/EBITDA mean?

NTM EV/EBITDA is a financial metric often used by buyers to assess the reasonability of a target's valuation. It is actually a combination of the following three terms:

"NTM" - next twelve months;

"EV" - enterprise value; and

"EBITDA" - earnings before income taxes, depreciation, and amortization. Like its closely related cousin, TTM EV/EBITDA, buyers use it to compare the EV calculated by a primary valuation method, such as the discounted cash flow approach, against the target's EBITDA. The primary difference is that this is a reasonability check against the planned future performance of the target (the next 12 months, rather than the trailing 12 months).

Divestopedia explains NTM EV/EBITDA

Buyers are more interested in making sure their purchase price is reasonable against the next 12 months' performance. After all, it is future performance that the buyer is purchasing and what will ultimately support the price paid.

In stable and/or mature industries, the last 12 months' performance can serve as a good proxy for the next 12 months. In these industries, buyers are more likely to focus on the reasonability of the TTM EV/EBITDA. However, for targets that are in growth industries (i.e. technology) or rapidly growing markets, the last 12 months would be irrelevant, so buyers would focus on the reasonability of the NTM EV/EBITDA. Sellers, therefore, have to provide a budget for the next 12 months that presents an aggressive, but realistic, NTM EBITDA. The key assumptions need to be itemized, so the buyer feels comfortable that the multiple paid is within its tolerance level and/or industry benchmarks.

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