Next Twelve Months (NTM)

Next Twelve Months, or NTM, refers to the expected financial figures for the coming twelve months. Unlike backward-looking metrics, this view looks ahead. It is used to value companies based on their expected future development.

The figure is calculated as a rolling combination of the current and following financial year, weighted by the number of months remaining, and therefore rests on the company's plan or on analyst estimates. The advantage is obvious: a company is valued for what it will earn rather than for what it has earned. That is also the source of conflict in negotiations, since the plan comes from the seller and is naturally optimistic, so buyers test it against the accuracy of earlier forecasts, commercial due diligence and the order book, and regularly trim it. A forward multiple on the coming twelve months sits systematically below the trailing multiple for a growing company, because the same price is applied to higher earnings. Comparisons between factors are therefore only meaningful on the same basis. In practice a middle course is often chosen, with the purchase price based on realised figures and the part depending on future development reflected in an earn-out.

In practice, this means a company is valued on a multiple applied to a forecast figure that has not yet materialised. Anyone comparing valuations must check whether both rest on the same time slice, otherwise a systematic error arises. For listed comparables the forecast figures usually come from consensus analyst estimates, while in mid-market transactions they come from the seller's own plan and warrant correspondingly critical review.