Forward multiple
Valuation & CompsA multiple whose denominator is an estimate of future earnings rather than reported ones, usually the next twelve months or the next financial year.
Also written: NTM, NTM multiple, next twelve months
A forward multiple prices the company against what it is expected to earn rather than what it has earned. That is the better question in principle, since a buyer acquires future cash flows, and it is the standard basis in sectors where growth is most of the story.
It has one property worth naming before an interviewer names it for you: a growing company looks cheaper on forward numbers by construction. Nothing about the business has changed between the trailing and the forward figure, only the period being measured, so quoting whichever multiple is lower without stating the basis is an argument disguised as a fact.
The denominator is an opinion. It comes from broker consensus or from your own model, so it can be stale, optimistic, or built on a handful of estimates. That is workable as long as it is disclosed, and dangerous when a forward multiple is set beside a trailing one in the same table.
The rule in practice is to use the same basis for every peer and for the target, and to say which basis it is. Mixing them, or quietly switching between them across a set, breaks the comparison in a way that is very hard for a reader to detect.
Worked example
An enterprise value of 1,000 against last twelve month EBITDA of 100 is 10.0x.
If the market expects 125 next year, the identical price is 8.0x forward. A company growing 25% therefore appears two turns cheaper on forward numbers without anything about it having changed.