NTM (Next Twelve Months)
The next twelve months will show the predicted performance of additions like an acquisition and new products.
The NTM (Next Twelve Months) is the next twelve months from the current date. Financial measures such as the net income, EBITDA, or revenue of the next twelve months predicted are the NTM. High growth businesses that have recently installed new product lines or taken over new acquisitions use the NTM EBITDA to determine or forecast the company’s forthcoming performance.
The next twelve months will show the predicted performance of additions like an acquisition and new products. NTM is opposite to the commonly used LTM (Last Twelve Months) metric. The LTM indicates past performance, whereas the NTM predicts future performance. The predicted valuation figures serve as a justification for the major purchases made by incorporation.
Let us take an example of ABC Ltd. They have just gone through a rough year. Their trailing twelve months is $7 million, $4 million less than their previous NTM prediction of $11 million.
The company’s EV / EBITDA would have been 2.5x if it was sold to Paul for $28 million, but the present EV / EBITDA is 4x. Paul will use the lower multiple here, which is 2.5x. A lower multiple makes a more reasonable argument about the value of the company not only to the shareholders and board but also to the banks. This is so because a lower multiple means a lower cost.
Business owners with mid-market businesses should know this in detail and prepare an adequate financial forecast for all the NTM metrics. If the seller is able to justify the lower multiple valuations with the aimed purchase price, there is a higher chance of the deal closing time improving.