Case 44 / 183 Analyst

LTM vs. NTM Multiples

Valuation & DCF

The prompt

“As an equity research associate, you are tasked with computing a fast-growing target's EV/EBITDA multiple on both a trailing (LTM) and forward (NTM) basis, and using the comparison to peers to judge whether the stock is really as expensive as the trailing multiple suggests.”

📋 What you're given

As an equity research associate, you are tasked with computing a fast-growing target's EV/EBITDA multiple on both a trailing (LTM) and forward (NTM) basis, and using the comparison to peers to judge whether the stock is really as expensive as the trailing multiple suggests.

1. Task Overview

Task: compute the target's EV/EBITDA multiple on both an LTM and NTM basis, then compare each to the peer group to judge whether the target is fairly priced.

Step 1: Given Data — Target and Peer Multiples

You've pulled the following figures for the target and its peer group.

Line ItemValue
Target Enterprise Value$2,400m
Target LTM EBITDA$120m
Target NTM EBITDA (consensus estimate)$160m
Peer Group Median LTM EV/EBITDA12.0x
Peer Group Median NTM EV/EBITDA11.5x

Step 2: LTM EV/EBITDA Multiple

Show LTM EV/EBITDA Multiple Formula

LTM EV/EBITDA = Enterprise Value / LTM EBITDA

Using this formula, compute the target's LTM EV/EBITDA multiple.

Step 3: NTM EV/EBITDA Multiple

Show NTM EV/EBITDA Multiple Formula

NTM EV/EBITDA = Enterprise Value / NTM EBITDA

Using this formula, compute the target's NTM EV/EBITDA multiple.

Step 4: Comparing the Premium to Peers

Show Premium to Peer Median Formula

Premium to Peer Median = (Target Multiple / Peer Median Multiple) - 1

Assume:

  • The peer group's own EBITDA is expected to grow only modestly over the next twelve months, unlike the target

Using this formula and these inputs, compute the target's premium to the peer median on both an LTM and NTM basis.

💡 Model answer

Try answering out loud first — then reveal the model answer and compare.

⚠️ Common mistakes

  • Comparing the target's LTM multiple directly against peers' NTM multiples (or vice versa) — mixing time bases makes any "premium" calculation meaningless
  • Concluding a high LTM multiple means a stock is overpriced without checking whether the NTM multiple tells a different story
  • Treating consensus NTM EBITDA estimates as guaranteed rather than a forecast that can miss
  • Confusing NTM (a rolling next-twelve-months figure) with "next fiscal year," which can differ meaningfully for a company mid-way through its fiscal year
  • Computing the peer median on an inconsistent basis (mixing LTM and NTM peer multiples together) before comparing it to the target

🔁 Follow-up questions

➡️ Related cases

Previous Case 43: Sum-of-the-Parts Valuation Next Case 45: Diluted Share Count

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