Why use NTM multiples instead of LTM multiples?

LTM multiples divide current value by the last twelve months of actual results, while NTM multiples use projections for the next twelve months. Both are useful, but they answer slightly different questions.

I lean on NTM multiples because share prices reflect expectations about the future, not the past. That matters most for companies growing quickly: a software company growing 40% a year may look extremely expensive on LTM revenue but more reasonable on NTM revenue, and comparing it to slower peers on LTM would mislead. NTM numbers also smooth over one-time events, such as a year hit by a plant shutdown, that distort trailing results.

LTM has advantages too. It is based on reported, audited figures rather than analyst estimates, which can be optimistic or unavailable for smaller and private companies. For precedent transactions, LTM at the time of the deal is standard because forward estimates at that point are often not disclosed. So in practice I show both, make sure every company is calendarized to the same period, and explain any big gap between them.