What Does NTM Multiple Mean?
The NTM multiple refers to the multiple that would be applied to the next twelve months of a particular financial measure such as revenue, EBITDA or net income. The next twelve months projection is often used to showcase a company's immediate future performance, which is particularly relevant for companies in high growth industries or those that have added a new product or completed an acquisition.
Divestopedia Explains NTM Multiple
Since valuations are based on the future performance of companies, the NTM multiple applied can be more relevant than the trailing twelve months (TTM) multiple. This is because historical results are not always indicative of future results, particularly for companies that have experienced a catalyst transaction that is not captured over the last twelve months.
For example, a buyer pays a purchase price of $50 million for a company that had $10 million of EBITDA over the trailing twelve months. However, three months prior to the transaction, this company introduced a new, high margin product line with significant barriers to entry that is expected to contribute significant EBITDA in the immediate future. The NTM EBITDA is projected at $20 million. In this case, the buyer is paying 5X TTM EBITDA (the $50 million purchase price divided by the TTM EBITDA of $10 million). However, the NTM multiple is only 2.5X since EBITDA is expected to double, making the purchase price more reasonable for the buyer.