LTM EBITDA
It is an indicator of a company’s profitability for the last twelve months
What is LTM EBITDA?
LTM EBITDA is a special valuation metric used in financial analysis. You may have heard of EBITDA, Earnings Before Interest, Taxes, Depreciation, and Amortization. EBITDA reflects a company’s profitability.
The distinguishing factor in LTM EBITDA is the abbreviation LTM, which stands for “Last Twelve Months.”
EBITDA is important when comparing an entity’s core performance, that is, activities directly related to its main purpose. LTM is a particular kind of EBITDA. Read about EBITDA here.
The “LTM” stands for the last twelve months. Another term you may hear for this is TTM, which stands for trailing twelve months. If an analyst were to calculate in October 2022, he would be using the company’s finances between November 2021 and October 2022.
LTM takes into account a company’s expenses. This presents a better idea of the company’s profitability, particularly its operating profitability.
LTM EBITDA is useful in finance for its analysis abilities. An entity’s financial performance and health are depicted. It is more useful for its short-term capabilities.
Since the method only uses the prior twelve months, the financial analysis is short-term and useless to assess a company’s complete life. LTM is used for mergers and acquisitions. Since M&A depends on the most accurate, up-to-date figures, LTM is great for this.
LTM implements recent finances as it sums up Net Profit, Tax Expenses, Interest Expenses, and Depreciation for the last financial periods. This figure then assesses profitability and operating performance.
Stakeholders and analysts obtain the most representative details of an entity’s financial position. LTM is beneficial for financial analysis. Let’s get into all things LTM.
Key Takeaways
- LTM EBITDA, or Last Twelve Months Earnings Before Interest, Taxes, Depreciation, and Amortization, is a financial metric used to evaluate a company's profitability over the past year.
- LTM considers the company's financial performance over the most recent twelve-month period, providing a snapshot of its recent operational performance.
- LTM EBITDA is commonly employed in financial analysis, especially in contexts like mergers and acquisitions, where up-to-date and accurate financial data is crucial for assessing the value and viability of transactions.
LTM EBITDA Calculation
The calculation is not difficult. It is a straightforward process. Here is how to do it: follow this approach to obtain the value accurately every time.
First, make sure you can look at the entity’s income statement. Most values will be drawn from here. Since LTM is for the last twelve months, ensure you have the income statement(s) that go back to the fiscal year.
If there are any abnormal events, exclude them from the calculation. This ensures a more accurate business activities figure.
1. EBITDA values are given
To calculate LTM EBITDA, all that must be done is to find the sum of the EBITDA for the last four quarters.
For instance, if there is an entity with EBITDA values as follows:
- 2022 Q1 EBITDA: $24,000
- 2022 Q2 EBITDA: $2,000
- 2022 Q3 EBITDA: $18,000
- 2022 Q4 EBITDA: $31,000
The LTM EBITDA would be equal to the sum of 2022 Q1 EBITDA, 2022 Q2 EBITDA, 2022 Q3 EBITDA, and 2022 Q4 EBITDA. That gives the calculation as
$24,000 + $2,000 + $18,000 + $31,000
The result is $75,000. Keep in mind that the approach just went over works if the EBITDA values are already provided. What about if they are not given?
2. EBITDA values are not given
If this is the case, there is more work to do. Again, use the income statement for the last year.
An income statement provides Sales, Expenses, Depreciation, Interest Expenses, Tax Expenses, and Net Profit. This is all we need. Remember, EBITDA is Earnings Before Interest, Taxes, Depreciation, and Amortization.
Therefore, to retrieve EBITDA, simply add up Net Profit, Tax Expenses, Interest Expenses, and Depreciation.
Retrieve the EBITDA values for each quarter of the year. And then, find the LTM EBITDA, which is the sum of the quarterly EBITDAs.
For instance, if there is an entity with values as follows:
| Section | 2022 Q1 | 2022 Q2 | 2022 Q3 | 2022 Q4 |
|---|---|---|---|---|
| Sales | $450,000 | $180,000 | $660,000 | $450,000 |
| Expenses | $30,000 | $160,000 | $292,000 | $185,000 |
| Depreciation | $8,000 | $3,500 | $8,000 | $19,000 |
| Interest Expenses | $5,000 | $4,000 | $2,000 | $3,000 |
| Tax Expenses | $5,100 | $3,600 | $6,900 | $6,800 |
| Net Profit | $26,800 | $56,000 | $81,100 | $67,100 |
First, obtain the EBITDA for each quarter.
EBITDA = Net Profit + Tax Expenses + Interest Expenses + Depreciation
2022 Q1 EBITDA = $26,800 + $5,100 + $5,000 + $8,000 = $44,900
2022 Q2 EBITDA = $56,000 + $3,600 + $4,000 + $3,500 = $67,100
2022 Q3 EBITDA = $81,100 + $6,900 + $2,000 + $8,000 = $98,000
2022 Q4 EBITDA = $67,100 + $6,800 + $3,000 + $19,000 = $95,900
LTM EBITDA is the sum of the quarterly EBITDA values. As of 2023 Q1, the sum is equal to the EBITDA for the entire 2022 fiscal year. The value is
$44,900 + $67,100 + $98,000 + $95,900 = $305,900
This is the final answer.
It is a useful analytic metric. Anyone interested in finance or business analytics should be able to calculate 1) EBITDA and 2) LTM EBITDA.
Use of LTM EBITDA
LTM EBITDA is a simple metric that provides insights about an entity. Investors and stakeholders utilize this to make a thorough financial analysis.
LTM EBITDA is an easy calculation. It is just some addition. Anyone can do it! All we need access to is the entity’s income statements.
Since the income statements are publicly published, there is less risk of data skewing or incorrect figures. The data has been vetted, so rest assured that the values are also accurate.
Speaking about values, LTM is used in ratio analyses such as Sales/LTM EBITDA and EV/LTM EBITDA.
LTM reflects an entity’s operating profitability. This gives a great look at where the company is going, benefiting stakeholders with useful information. In terms of helping the company, they can understand if their operations vary seasonally. It is unaffected by capital structure.
This makes it a prime indicator used for comparing businesses since it is objective.
Businesses can use this metric to optimize their efficiency and performance throughout different business cycles. It is a useful indicator that provides a holistic view of the business and its activities. Stakeholders should use this metric.
LTM and TTM EBITDA in Ratio Analysis
TTM, Trailing Twelve Months, EBITDA, and LTM, Last Twelve Months, EBITDA, are useful in ratio analysis. Both serve different purposes but can be used to uncover an entity’s financial position, liquidity, operations, and profitability.
TTM is a short-term metric as it only considers the recent twelve-month period. TTM is great for understanding if the company is profitable and how its cash flow is. TTM is useful for comparing companies within the same sector. It is useful in financial analysis.
On the other hand, LTM is useful for a longer time span. As it covers the company’s performance for the last twelve months, it rectifies any fluctuations caused by seasonality or other short trends. LTM is better for analyzing a company’s stability.
Both metrics are used for liquidity purposes.
The two metrics are used when comparing companies and making financial decisions. However, it is important to note that both serve different purposes.
Conclusion
People do not use LTM much as they prefer the EBITDA counterpart. However, LTM is useful in its own way as well.
Questions such as: Is it a good firm to invest in? Or should I move my money elsewhere? This can be answered by looking at and interpreting LTM EBITDA.
The fact that the figure is the sum of the last year’s worth of EBITDA is a strong quality as one can see how the EBITDA picks up or trails off, therefore showcasing the company’s trajectory.
By utilizing LTM EBITDA, people can make informed decisions. Businesses can easily be compared. Without including interest, taxes, depreciation, and amortization expenses, this metric assesses the entity’s operating profitability.
Since it has only been used for the last twelve months, it is unsuitable for long-term analysis. LTM EBITDA is a versatile tool to obtain a snapshot of a business’s finances. Learn how to use this calculation.
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