LTM EBITDA

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Blog Author :

WallStreetMojo Team

Edited by :

Ashish Kumar Srivastav

Reviewed by :

Dheeraj Vaidya, CFA, FRM

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What is LTM EBITDA (TTM)?

LTM EBITDA (Last Twelve Months EBITDA) is a calculation of the company's earnings before netting interest, taxes, depreciation, & amortization components for the past twelve months.

  • LTM EBITDA is an important metric used in the valuation of businesses as it is more focused on the company's operating results for the immediate twelve months.
  • Additionally, it is one of the finest measurement tools to calculate operating cash flow as it computes the operating income before deducting interest expenses, taxes, and depreciation & amortization expenses, considering the present scenarios.
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LTM Ebitda

Please note that LTM EBITDA is also known as TTM EBITDA (Trailing Twelve Months)

LTM EBITDA Calculation

Let us have a look at the following income statement of company ABC.

Ebitda Calculation

Let us first calculate the EBITDA during the calendar year

  • = EBITDA (Q1 2017) + EBITDA (Q2 2017) +EBITDA (Q3 2017) +EBITDA (Q4 2017)
  • = $123 + $154 + $192 + $240 = $708
LTM Ebitda Calculation

Now that we have calculated calendar EBITDA, let us calculate the last twelve months EBITDA (assuming that you are calculating LTM EBITDA in the month of April 2018)

  • LTM EBITDA = EBITDA (Q1 2018) + EBITDA (Q4 2017) +EBITDA (Q3 2017) +EBITDA (Q2 2017)
  • TTM EBITDA = $300 + $240 + $192 + $154 = $886

LTM EBITDA Explained in Video

Use of LTM EBITDA

  • TTM EBITDA is used in Mergers and Acquisitions. The potential buyers prefer to value the acquisition price of Target Company based on TTM EBITDA. It helps them to determine the actual operating performance of the company without taking the effects of its financial and investment decisions.
  • LTM EBITDA gives an idea about the pure operating results of any young company. It also tells about synergy's effect on any restructured company's operating performance.
  • Investors use EBITDA to calculate various valuation ratios and compare them with other potential Target Companies. However, the purchase of Target Company may be made at any point in time, and using previous year-end EBITDA to calculate financial ratios may signify incorrect valuation results to the investors. Hence, it is the most appropriate practice among the technicians to calculate LTM EBITDA by taking the financial history of the last twelve months and computing the valuation ratios.

TTM EBITDA in Ratio Analysis

1) TTM EBITDA Margin

Does LTM EBITDA Margin refers to how much operating cash a company can generate against its total revenue in the last twelve months? This is one of the crucial Profitability Ratios which is calculated as

TTM EBITDA Margin = TTM EBITDA / Total TTM Revenue.

2) TTM EBITDA Coverage

TTM EBITDA Coverage Ratio is a kind of Solvency Ratio that defines how much cash a company has generated in the last twelve months from its operating activities to cover its financial obligations, i.e., interest and lease expenses. It can be calculated as

LTM EBITDA Coverage Ratio = TTM EBITDA + LTM Lease Expenses / LTM Interest Expenses + LTM Principle Repayment + LTM Lease Expenses

These are the key financial ratios from the point of view of investors, and they can calculate the same for (NTM) next twelve months to have better clarity about the company. LTM EBITDA is also used as a denominator in the valuation of Target Company, i.e., Enterprise Value / LTM EBITDA.

Conclusion

LTM EBITDA helps us understand the company's core operating cash flow and how good it is at managing its operating decisions. However, many companies use this metric for windows dressing their accounting statements. So it is always better to consider company's debt-capital structure, capital expenditure, and net income while considering TTM EBITDA as a sole valuation metric.