Series 79 practice questionhardComparable Company Analysis
An analyst is building a comparable company analysis and must choose between using LTM (last twelve months) and NTM (next twelve months) multiples. Which of the following statements is most accurate?
- ALTM multiples are always preferred because they use actual reported results
- BNTM multiples are preferred when there is a significant inflection in growth or profitability expected, as they better reflect forward-looking value✓ Correct answer
- CNTM multiples should never be used because they rely on analyst estimates
- DLTM and NTM multiples always produce the same valuation range
Explanation
Why B — NTM multiples are preferred when there is a significant inflection in growth or profitability expected, as they better reflect forward-looking value
NTM (forward) multiples are particularly useful when a company or its sector is undergoing a significant change in growth trajectory, margin profile, or business model. Since stock prices are forward-looking, NTM multiples often provide a better basis for comparison. However, they rely on consensus analyst estimates, which introduces forecast risk. Best practice is to present both LTM and NTM multiples to provide a comprehensive view, especially when there is a meaningful difference between historical and projected performance.
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