Stub period
Valuation & CompsThe part year between a company's last financial year end and its most recent reporting date, used to roll a full year figure forward.
Also written: stub, stub quarter
A stub is any period shorter than a full year that has to be handled separately. In comps it is the months reported since the last year end, and it is the mechanism that turns a stale annual figure into a current one.
It has to be used in pairs. Adding this year's stub without subtracting the equivalent stub from the prior year double counts those months, which is the single most common arithmetic error in a comps build.
The same idea appears elsewhere. A deal completing part way through a financial year creates a stub period in the model, and a company changing its year end reports one short accounting period that is not comparable with anything above or below it in a trend table.
Seasonality is the trap. A stub covering the fourth quarter of a retailer is not a quarter of a year in economic terms, so any weighting or annualisation that treats it as one will misstate the result, sometimes badly.
Worked example
A June year end company reports half year figures to 31 December. The stub is the six months from July to December.
LTM EBITDA at that date is the year to June, plus the July to December stub, less the July to December stub of the prior year. If the business earns most of its profit in the second half, the same arithmetic still works, while just doubling the stub would not.