What Does NTM Revenue Mean?
NTM revenue refers to a company's revenue over the next twelve months (NTM) of operations. This financial measure is sometimes overlooked by buyers who are more focused on a company's future profitability and ability to generate future EBITDA. However, it can be useful to determine if a company's top line is growing and where the revenue growth is coming from. The next twelve months should be reviewed by a buyer, particularly if there has been a catalyst during the period such as an acquisition or introduction of a new product.
Divestopedia Explains NTM Revenue
A company's NTM revenue will not provide information on its ability to turn a profit. If the company is capable of delivering $100 million of revenue over the next twelve months, but its margins are negative resulting in a net loss, then it is likely to face a valuation discount regardless of its top line generating abilities. This is why buyers focus more on NTM EBITDA when assessing the reasonability of a valuation, since the company's profitability is more important.
NTM revenue is more commonly the valuation of professional service firms such as accounting and legal practices where revenue accrues by the hour and is tied to the professionals themselves. This is because the cost structure can vary considerably and the majority of the revenue is tied to the individual professional's relationships with clients. If the professionals leave and take the clients with them, the revenue disappears completely making the valuation on NTM revenue more relevant.