Input discipline
Run-Rate vs Trailing EBITDA
Two ways to express current-period earnings: annualise the most recent quarter (run-rate), or sum the last four quarters (trailing twelve months, LTM). The choice changes the exit- multiple terminal value, and the right choice depends on whether the business is in steady state.
Direct answer
Use trailing twelve months EBITDA when the business is in steady state. Use annualised run-rate EBITDA when a clear step-change has happened (a contract win, a pricing reset, an acquisition that closed mid-year) and the trailing number is stale by construction. State the choice explicitly so a reviewer can re-cut.
When each fits
Decision matrix
| Situation | Preferred input | Why |
|---|---|---|
| Steady-state business | Trailing twelve months | Smooths quarterly noise, captures full seasonal cycle. |
| Mid-year acquisition closed | Run-rate (pro-forma) | Trailing understates by under-weighting the post-close period. |
| Pricing reset effective Q1 | Run-rate from Q1 onward | Trailing carries three quarters of old-pricing revenue. |
| Highly seasonal business (retail, agriculture) | Trailing twelve months | Run-rate from Q4 would overstate; from Q2 would understate. |
| Cyclical business (semis, autos) | Cycle-normalised | Neither LTM nor run-rate is right. Average across a full cycle. |
Source: Rosenbaum and Pearl, Investment Banking 3rd ed., comparable companies analysis chapterLast verified June 2026.
The cross-check
If LTM and run-rate disagree by more than 10 percent
Disclose both
Show the LTM EBITDA and the run-rate EBITDA on the same page. State which one you used and why. The 10-percent threshold means a step-change has happened and the reader needs to see both.
Apply the multiple to the conservative number
Unless the step-change is permanent and well-documented, default to the lower of the two. Run-rate over-promises more often than trailing under-promises.
Related
Where to go next
Last verified June 2026. Source: Rosenbaum and Pearl, Investment Banking 3rd ed.