Why are LTM EBITDA figures commonly used as a value driver in transaction comps?

Why are LTM EBITDA figures commonly used as a value driver in transaction comps?

• A. They reflect past performance and are easier to obtain
• B. They are easy to manipulate
• C. They are forward-looking
• D. They are not relevant

Answer: (A)

The main idea is that you want a metric that is both relevant to current operations and easy to compare across peers. LTM EBITDA provides a run-rate snapshot of operating performance from the most recent twelve months, so it reflects how the business is actually doing now without waiting for the next annual report. It’s also widely reported and readily available in financial statements, making data collection quick and consistent across many companies. This combination of reflecting recent performance and being easy to obtain is why LTM EBITDA is a common value driver in transaction comps. It’s not forward-looking, and while adjustments are possible, the plain LTM figure offers a straightforward, auditable baseline for comparing valuation multiples.

The main idea is that you want a metric that is both relevant to current operations and easy to compare across peers. LTM EBITDA provides a run-rate snapshot of operating performance from the most recent twelve months, so it reflects how the business is actually doing now without waiting for the next annual report. It’s also widely reported and readily available in financial statements, making data collection quick and consistent across many companies. This combination of reflecting recent performance and being easy to obtain is why LTM EBITDA is a common value driver in transaction comps. It’s not forward-looking, and while adjustments are possible, the plain LTM figure offers a straightforward, auditable baseline for comparing valuation multiples.