What Does Next Twelve Months (NTM) Mean?
Next twelve months (NTM) refers to any financial measure such as revenue, EBITDA, or net income that is being forecasted for the immediate next twelve months from the current date. NTM EBITDA is often used to showcase a company’s immediate future performance, and is particularly relevant in high growth industries or for companies that have recently added a new product line or acquisition. The NTM projection would capture the estimated full performance of such addition. NTM is the direct opposite of another commonly used measure metric — the trailing 12 months or “TTM” — which measures the historical financial performance for the immediate prior twelve month period from the current date.
Divestopedia Explains Next Twelve Months (NTM)
NTM financial performance is most commonly used to calculate a valuation multiple based on forecasted numbers, which provides the main justification for the purchase price paid.
For example:
A company that experienced a tough year had TTM EBITDA of$10 million, but the NTM EBITDA is anticipated to rebound to $15 million. If the business is purchased for for $50 million, the EV / TTM EBITDA would be 5.0x, but the EV / NTM EBITDA is 3.3x. The buyer would likely use the EV/NTM EBITDA multiple of 3.3X, because the lower valuation multiple is easier to justify to the Board, bankers, and shareholders.
Knowing this information, mid-market business owners should prepare an adequate forecast of all key NTM financial metrics. If the seller can help a buyer justify a lower valuation multiple, while still getting the purchase price target, the probability and timing of closing the deal greatly improves.
