Trailing and forward EBITDA multiples on the same peer set, when they agree, when they should not, and the mismatch that inflates a mark.
Either, as long as the multiple and the earnings belong to the same period: trailing (LTM) peer multiples on the subject's trailing EBITDA, forward (NTM) multiples on its forward EBITDA. On an illustrative peer set at a 10.0x LTM and 9.1x NTM median, a company with 40.0 of LTM EBITDA is worth 400.0 on LTM and 397.3 on a haircut budget. The common error, 10.0x applied to the 46.0 budget, gives 460.0: 15.8 per cent too high.
Worked in full in The Private Markets Valuation Specialist by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Market-approach valuations quote two multiples for the same peers because the market prices listed companies on expected earnings while private companies report actual ones. Both are legitimate. The problem is that they come from different denominators, and a valuation that takes the multiple from one column and the earnings from the other counts a year of growth twice, or misses it.
| Peer | EV | LTM EBITDA | NTM EBITDA | EV/LTM | EV/NTM | Growth |
|---|---|---|---|---|---|---|
| Peer 1 | 1,320 | 120.0 | 134.4 | 11.0x | 9.8x | 12.0% |
| Peer 2 | 936 | 90.0 | 97.2 | 10.4x | 9.6x | 8.0% |
| Peer 3 | 750 | 75.0 | 82.5 | 10.0x | 9.1x | 10.0% |
| Peer 4 | 1,520 | 160.0 | 169.6 | 9.5x | 9.0x | 6.0% |
| Peer 5 | 528 | 60.0 | 65.4 | 8.8x | 8.1x | 9.0% |
| Median | 10.0x | 9.1x | 9.0% |
| Input | Value |
|---|---|
| LTM EBITDA, normalised | 40.0 |
| Management budget, next twelve months | 46.0 |
| Haircut to the budget, from the company's record against past budgets | 5% |
| Net debt | 120.0 |
Step 1: the LTM route. Median trailing multiple on trailing EBITDA.
EV = 10.0 × 40.0 = 400.0; equity = 400.0 − 120.0 = 280.0
Excel: =MEDIAN(EV_range/LTM_range)*LTM_subject, entered as an array formula
Step 2: the forward route, on a defensible forward figure. The budget implies 15.0 per cent growth against a peer median of 9.0. Peer NTM numbers are analyst consensus, not management budgets, so the subject's figure has to be put on a comparable footing. A 5 per cent haircut, set from how the company has performed against its own budgets, gives 43.7, growth of 9.2 per cent.
EV = 9.09 × 43.7 = 397.3; equity = 277.3 (the median NTM multiple unrounded is 9.09x)
On the unadjusted budget: 9.09 × 46.0 = 418.2, 4.5 per cent above the LTM route
Step 3: the cross-check. The haircut NTM value implies an LTM multiple of 9.93x, within a tenth of a turn of the peer median. The two routes agree, and the memorandum can say why: the subject's credible growth is close to its peers'.
| Method | EV | Equity | vs LTM route |
|---|---|---|---|
| LTM multiple × LTM EBITDA | 400.0 | 280.0 | +0.0% |
| NTM multiple × haircut NTM | 397.3 | 277.3 | -0.7% |
| NTM multiple × budget NTM | 418.2 | 298.2 | +4.5% |
| Mismatch: LTM multiple × budget NTM | 460.0 | 340.0 | +15.0% |
The consistent methods land within 0.7 per cent of each other. The mismatched one sits 15.8 per cent above the defensible forward value, and because net debt does not move, the error in equity is larger: 22.6 per cent.
| Subject NTM growth | NTM EBITDA | LTM-based EV | NTM-based EV | Gap |
|---|---|---|---|---|
| 0.0% | 40.0 | 400.0 | 363.6 | -9.1% |
| 5.0% | 42.0 | 400.0 | 381.8 | -4.5% |
| 9.0% | 43.6 | 400.0 | 396.4 | -0.9% |
| 10.0% | 44.0 | 400.0 | 400.0 | +0.0% |
| 15.0% | 46.0 | 400.0 | 418.2 | +4.5% |
| 25.0% | 50.0 | 400.0 | 454.5 | +13.6% |
The two routes agree when the subject grows at 10.0 per cent, the ratio of the two median multiples, not at the 9.0 per cent median growth: the median growth belongs to a different peer from the median multiples. Above that rate the forward route rewards growth the trailing multiple ignores; below it, the trailing route overvalues a company whose earnings are flat. A gap in either direction is information. The point is to explain it, not to average it away.
For a company whose earnings are about to fall, the LTM route is the dangerous one: at zero growth it says 400.0 where the forward route says 363.6.
The two columns are only comparable if every peer's figures cover the same twelve months as the subject's. Annual figures from a peer with a March year-end and one with a December year-end describe twelve-month periods that end on different dates, and their NTM consensus is offset in the same way. Rebuild each peer's LTM from the latest quarterly figures, and roll NTM consensus to the measurement date by weighting the current and next fiscal years by the months remaining, before computing a single multiple.
Taking the multiple from the LTM column, because it is the one the peers' annual reports support, and the earnings from the budget, because it is the most recent number the company has. It is a frequent inconsistency in market-approach memoranda, and for a growing company it always errs upwards. The fix is mechanical: label every multiple and every earnings figure with its period, and refuse any product whose labels differ. The second mistake is quieter: using an unadjusted management budget against consensus peer forecasts, which here adds 4.5 per cent on its own.
The book builds the market approach link by link, from comparable set to normalised EBITDA to a multiple made of named judgments; the free workbook for this case carries that chain through calibration and the roll-forward. The single-multiple version is in how to value a private company with an EBITDA multiple, and anchoring it to the price paid in how to calibrate a valuation to the entry price.
Use both, each on its own basis, and explain any gap. LTM rests on audited numbers; NTM captures growth that differs from the peers'. On the illustrative case they give 400.0 and 397.3, so the conclusion is robust. If they diverged by more than a few per cent, the reason, usually a growth difference or an optimistic budget, belongs in the memorandum.
You value next year's earnings at a price set for last year's, counting a year of growth twice. On the illustrative case, 10.0x on a 46.0 budget gives an enterprise value of 460.0 against 397.3 on a consistent basis: 15.8 per cent too high, and 22.6 per cent too much equity after 120.0 of net debt.
When the subject's expected growth equals the growth implied by the ratio of the two peer multiples: here 10.0x over 9.1x, or 10.0 per cent. Faster growth makes the NTM value higher, slower growth makes it lower. At 25 per cent growth the NTM approach gives 454.5, 13.6 per cent above the LTM figure.
This article is one calculation from The Private Markets Valuation Specialist. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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