Answers / M&A Advisory

What's the difference between trailing and forward multiples?

A core M&A Advisory interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.

THE SHORT ANSWER

Trailing multiples are based on the last 12 months of actual, verified data. Forward multiples are based on the next 12 months of projected, uncertain data. Buyers prefer trailing multiples because they are conservative, while sellers prefer forward multiples because they can show higher value if the company is growing. Standard practice is to use both.

WHAT INTERVIEWERS LISTEN FOR

  • ✓Trailing uses actual historical data
  • ✓Forward uses projected future data
  • ✓Buyers prefer trailing, sellers prefer forward
  • ✓Standard to use both

COMMON MISTAKES

  • ✗Confusing trailing and forward definitions
  • ✗Not understanding buyer/seller preference
  • ✗Using only one multiple in valuation

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