NTM (Next Twelve Months)

The next twelve months will show the predicted performance of additions like an acquisition and new products.

In mergers and acquisitions, valuations should provide a clearer picture of a company’s future earnings potential. This can be more relevant than past performance, especially in industries with rapid change. Also valuation multiples EV/EBITDA is important for M&A ,as they help to justify purchase prices based on expected future earnings rather than historical data.

For calculating valuation multiples like EV/EBITDA, NTM metrics are commonly used. Suppose if a company has a trailing 12 months EBITDA of $10 Million might have an NTM EBITDA forecast of $15million, leading to a more favorable valuation multiple for potential buyers.

Understanding of NTM is vital as it serves as a vital tool for financial analysis and forecasting.

What Is NTM (Next Twelve Months)?

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.

How To Calculate NTM?

NTM estimates are important for investors and analysts as it gives insights into a company’s future profitability potential.

Let’s look at an example to understand in detail how to calculate NTM (Next Twelve Months) EBITDA.

So, consider a company Tech Corp, a growing company that develops innovative software products for businesses to enhance productivity.

The company’s estimated revenue for the next twelve months is $15 million. The EBITDA margin is the percentage of revenue that translates into EBITDA and the company’s EBITDA margin is 5%.

NTM Revenue$15M
EBITDA Margin15%

Substituting the values, we get

NTM EBITDA = NTM Revenue X EBITDA Margin

NTM EBITDA = $2,250,000

So, in the above example, the value of NTM EBITDA is $2.25M.

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.

Factors Determine NTM Accuracy

Several factors influence the accuracy of Next Twelve Months estimates, which are critical for future financial performance. These factors can be categorized to external and internal:

Internal Factors

  • Historical performance – Companies undergo process restructuring or shifts in business model may present challenges in projecting future performance accurately.
  • Management Guidance – Companies often provide guidance based on strategic plans and expectations. Management may have incentives to present an overly optimistic outlook, especially if compensation is linked to performance of stock.
  • Operational changes – Any changes such as cost-cutting,product launches or management change can impact future earnings and thus the reliability of NTM estimates.

External Factors

  • Market conditions – Economic factors like Inflation, interest rates and overall market sentiment can influence accuracy of forecasts.
  • Industry Trends – Changes happening in industry dynamics ,including the competitive pressures and technological advancements can impact NTM estimates.
  • Regulatory Environment – Changes in regulations and compliance requirements can affect the companies operational and financial performance,impacting the accuracy of NTM forecasts.

Next Twelve Months: The Future of Your Business!

NTM estimates are valuable for investors and analysts as they provide insights into a company’s future growth potential, especially in sectors that have growth or changes. They allow for better comparisons across companies with different fiscal year-ends and help them make investment decisions based on expected future performance rather than historical data alone.

Eqvista offers valuation service tailored for companies focusing on future performance through a combination of historical forward-looking analysis, allowing companies to better navigate strategic decisions and investment opportunities.

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