What is LTM EBITDA?
LTM EBITDA is a company’s earnings before interest, taxes, depreciation, and amortization across the trailing twelve months.
How to Calculate LTM EBITDA (Step-by-Step)
The LTM EBITDA metric refers to a company’s EBITDA as of the most recent four quarters, i.e. the last 12-month period.
- LTM: “Last Twelve Months”
- EBITDA: “Earnings Before Interest, Taxes, Depreciation, and Amortization”
EBITDA is a non-GAAP metric that measures a company’s core operating cash flows. At its simplest form, a company’s EBITDA is equal to the sum of its operating income (EBIT) and D&A.
- EBIT: EBIT, or operating income, is the remaining profits of a company after subtracting its operating costs—cost of goods sold (COGS) and operating expenses (SG&A, R&D)—from its revenue in the same period.
- D&A: D&A stands for “depreciation and amortization”, which are non-cash items recognized on a company’s income statement to abide by accrual accounting standards, i.e. the matching principle. Instead of recording the entire expense in the period of occurrence, the expense is recognized across the useful life assumption of the purchased fixed asset (i.e. capital expenditure) or intangible asset.
Below are the steps to calculate a company’s LTM EBITDA:
- Step 1: Compile Historical EBITDA Data
- Step 2: Add the Year-to-Date (YTD) EBITDA to the Latest Annual EBITDA
- Step 3: Subtract the YTD EBITDA from the Prior Year
- Step 4: Adjust the LTM EBITDA for Non-Recurring, One-Time Items
Learn More → EBITDA Quick Primer
LTM EBITDA Formula
The formula for calculating LTM EBITDA is as follows.
The operating income (EBIT) of a company is a line item on the income statement, whereas the full D&A expense can be found on the cash flow statement (CFS).
- EBIT = Revenue – COGS – Operating Expenses
- D&A = Depreciation + Amortization
- EBITDA = EBIT + D&A
Transaction Multiple: Purchase Price in M&A
The usage of LTM EBITDA tends to be most common in M&A transactions, such as a leveraged buyout (LBO). For example, the purchase multiple in an LBO can be based on the acquisition target’s LTM EBITDA.
While negotiating the purchase multiple, the buyer and seller want the earnings metric that the purchase multiple is based upon to reflect the company’s most recent performance. Otherwise, the purchase price would not be based on the current financial state of the company, which can clearly be problematic, especially for the buyer.
Another consideration is whether the company is public or private, which is mostly related to the context of the calculation.
- Public Companies: Publicly-traded companies report their financials on a quarterly basis per SEC filing requirements—assuming there is no confidential material available—so the adjustments are limited to quarterly financials. Thus, a couple of months might have passed since the most recent quarter. However, the analysis is likely done by an equity analyst or investor in the company’s common shares, as opposed to an acquirer in M&A (e.g. by a strategic buyer or financial buyer).
- Private Companies: In contrast, privately-held companies are not obligated to report their financial statements to the public. Therefore, the calculation of the company’s LTM EBITDA implies their monthly financials are accessible (i.e. to a potential acquirer).
