Last twelve months
Valuation & CompsThe most recent twelve months of reported performance, built from the last full financial year plus the current stub less the prior year stub.
Also written: LTM, trailing twelve months, TTM
A multiple is supposed to describe the company as it stands now, and the last full financial year can be eleven months old by the time you are working on it. The last twelve months solves that by rolling the period forward to the most recent reporting date.
The construction is simple and the error is common. Take the last full financial year, add the stub period reported since that year end, and subtract the same stub from the year before. Adding the new quarter without removing the old one counts three months twice and inflates the denominator, which makes the company look cheaper than it is.
LTM is the default basis in trading comps because it is reported rather than estimated, and it is close to universal in precedent transactions because at the moment of announcement it is the only basis that exists for every deal in the set.
Its weakness is that it looks backwards. For a company mid recovery or mid decline, the last twelve months describes a business that no longer exists, which is the argument for pairing it with a forward multiple rather than choosing between them.
Worked example
A December year end company reported EBITDA of 500 for last year, 140 in the first quarter of this year and 120 in the same quarter a year earlier.
LTM EBITDA to 31 March is 500 plus 140 less 120, so 520. Adding the quarter without removing the prior year stub would give 640, overstating the denominator by more than 20%.