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Ethereum has been one of the most popular blockchains in the market ever since its release in 2015. Its unique features and smart contract implementation made it a hit, and most of the decentralised ecosystem now sits on top of Ethereum. But this has also brought one of Ethereum’s major features into the picture – Gas Fees. So what are gas fees and how is gas price determined?

“Gas” refers to the amount of ETH required to interact with the Ethereum network. The ETH gas fees are essentially the processing fees for your transaction. It is an additional amount you have to pay for the network to validate and confirm your transaction.

The Ethereum network is entirely decentralized, so there is no central authority to validate transactions. Instead, users known as “validators” stake their ETH tokens and run nodes on the network. These nodes process and verify transactions.

As payment for the services provided, these validators receive rewards in the form of gas fees. In essence, you are paying for your transaction to be verified and added to the blockchain by other users.

Gas fees are determined based on the laws of supply and demand. So, factors like the number of transactions on the network, the number of validators and changes to transaction systems all affect the current gas fees of the network.

Gas fees on the network are usually just a fraction of 1 ETH. To better represent these amounts, Ethererum uses a value known as “wei”. One quintillion – or 1,000,000,000,000,000,000 – wei is equal to 1 ETH. Since this is a very small number, gas fees typically use “gwei” or gigawei, which is 1 billion wei. You may frequently see gas fees listed as 30 gwei or 200 gwei.

As mentioned above, gas prices are dependent on several factors that influence demand and supply. When the network is congested, it means the number of transactions is far greater than the amount the validators can handle. At such times, you have to pay exorbitant amounts in fees to get your transaction processed.

There are three main elements of gas fees

As an example, suppose the average Ethereum gas limit required to do a transaction is 1,000 gwei. The minimum fee is 5 gwei and you decide to add a tip of 2 gwei. The total fees in this case will be 1000 *(5+2) = 7,000 gwei. This is equivalent to 0.000007 ETH.

There are many Ethereum gas fees calculators available online, such as Cryptoneur’s gas fees calculator. Other useful tools include ETH gas station and Etherscan.io

This tip is relevant for decentralized application (dApp) developers on Ethereum. Optimizing how your smart contracts execute can help your application use less gas. This means savings for your users and higher speeds on the network.

Sometimes, using Ethereum is just too slow and expensive to be efficient. This is why off-chain solutions like Layer 2 scaling blockchains and sidechains exist. You can use L2s like Arbitrum or sidechains like Polygon to complete your transactions much faster and cheaper than on the main network.

While a wallet does not directly affect how much fees you pay, it can offer you tools to help reduce the amount. Some wallets offer real-time updates on the gas fees of the network, which ensures you do not pay more than you wish to.

Some dApps offer rebates and discount codes when they launch new features or a platform. This helps you use the platform without paying as much for it.

Ethereum recently completed its ETH 2.0 upgrade, which shifted it from Proof of Work to Proof of Stake validation. This meant a shift in the gas fees from mining rewards to staking rewards. Future upgrades are intended to improve the platform’s speed and scalability. This will also decrease gas fees as the network can handle more transactions.

Read more: Proof of Work vs Proof of Stake

Many platforms such as Moonpay believe that Ethereum’s upgrades are key to improving the gas fee situation on the network. Another possibility is the growth of layer 2 and sidechain solutions, which reduce the dependency on Ethereum’s main network and its fees.

Lower gas fees will surely lead to more users and developers flocking to the platform. It is currently one of the biggest hurdles to greater adoption of the technology.

Understanding what is ETH gas fees is one of the most important things to do before using the network. These fees can be extremely expensive if you don’t pay attention to them. However, the future looks promising, with many upgrades planned to increase Ethereum’s capacity to handle transactions, which will reduce gas fees for all users.

You can learn more about Ethereum on ZebPay blogs. Begin your crypto trading journey today on ZebPay India.

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The term LTM stands for ‘Last Twelve Months.’

Finance professionals use LTM Calculations to analyze the previous full year of performance for a Business.

Analysts create LTM calculations because the regularly reported Financial data only reflects the prior twelve months of data once per year (right after the Annual Report).

The LTM calculation is distinct from the most recent full-year (‘Fiscal’ or ‘Calendar’ Year) or prior three months (‘Quarterly’) data.

Two of the most common LTM calculations are LTM Revenue and LTM EBITDA. We’ll show examples of how to calculate both in this article.

Before we dive into why LTM usage is so widespread, let’s quickly clarify LTM vs TTM.

Frustratingly, in the Finance world, we seem to need multiple terms for everything.

The numerous interchangeable terms often cause massive confusion for newcomers. LTM calculations are no exception.

As we mentioned before, LTM stands for ‘Last Twelve Months.’

However, there’s another term for this same concept which is TTM or ‘Trailing Twelve Months.’

While LTM is more common in our experience, TTM is pretty widespread and means the exact same thing as LTM.

So, if someone asks you to calculate TTM Revenue, it’s the same calculation as LTM Revenue.

When analyzing a company, you’ll want to see the Company’s most up-to-date performance.

While Quarterly data can be helpful, some companies have significant fluctuations in their Business in particular quarters within each year.

As an example, let’s look at a Retail Business like Best Buy.

As you can see above, the fourth quarter (i.e. the Christmas Holidays) generates a significant portion of annual Revenue.

If we only looked at the fourth quarter for Best Buy, we’d see a VERY distorted picture.

Because of fluctuations like this within each year, we typically want to see a full year of Financial data. This is where LTM Revenue would be very helpful.

If Companies reported a full year of Financial data with each Quarterly Report, the concept of LTM would not exist.

However, most companies report 12 months of data once per Year and Quarterly data three times per year.

As a result, we can only see the prior twelve months of performance for the 3 months after the Annual Report (or 10K Filing in the US).

As we’ll see in the next section, an LTM calculation allows us to see the previous 12 months of performance at any point in the year.

To calculate any LTM metric, we follow the simple, 3-Step Process below:

With this calculation, we can quickly compute the latest Twelve Months of data at any point in the year.

Below we’ve included a simple, visual example of an LTM calculation on a timeline so you can more easily see how each of the pieces from the steps above come together.

Now let’s look at a few real-life LTM calculations!

We’ve explained LTM at a high level. Now, let’s walk through a couple of LTM calculations in action for Uber and Coinbase.

These examples will help you understand how to source the data needed to calculate LTM Revenue and LTM EBITDA.

Let’s imagine that we want to calculate the LTM Revenue for the ridesharing business Uber.

To calculate LTM Revenue, we’d begin by finding the Company’s latest Annual Revenue in Uber’s most recent 10-K filing.

We’d then look for the latest Year-To-Date Revenue data in Uber’s most recent 10-Q filing.

Now that we’ve found both of these items, we can complete the LTM Revenue Calculation for Uber.

In this example, Uber’s LTM Revenue declined slightly to 3% below the latest Annual Revenue.

Let’s now imagine that we want to calculate the LTM EBITDA for the Cryptocurrency Exchange Platform Coinbase.

We’d begin by finding the Company’s latest Annual EBITDA in Coinbase’s S-1 Filing.

Note: We are only pulling from the S-1 filing in this case because Coinbase just went public in April 2021. As a result, the company hasn’t yet published a 10K filing.

We’d then look for the latest Year-To-Date Financial data in Coinbase’s most recent 10Q filing.

Now that we’ve found both of these items, we can complete the LTM EBITDA Calculation for Coinbase.

In this example, Coinbase’s LTM EBITDA increased significantly to 202% higher than the latest Annual EBITDA.

Finance Professionals across Investment Banking, Private Equity, and Lending (or ’Credit’) use LTM Revenue and LTM EBITDA metrics every day.

In the sections below, we will cover a few real-life use cases for LTM Revenue and LTM EBITDA.

Nearly every Investment Bank has a Mergers and Acquisitions (or ‘M&A’) advisory offering. In M&A, Bankers advise their Clients on the Valuation of their Clients’ Businesses.

One of the most commonly used metrics for Valuation in Investment Banking is the Enterprise Value / LTM EBITDA (or EV / LTM EBITDA) Multiple.

This particular multiple is one of the most typical multiples for Acquisition Analysis.

By looking at the Last Twelve Months of EBITDA, the Bankers can create a Valuation Multiple that incorporates the Company’s latest Financial performance.

Very briefly, Enterprise Value represents the Purchase Price of the entire Business. And it’s common to look at Enterprise Value relative to the Last Twelve Months of EBITDA.

An Investment Banker would typically calculate the EV / LTM EBITDA Multiple for several peer companies.

The banker would then apply the Peer EV / LTM EBITDA Multiple to the Client company’s EBITDA to determine the appropriate sale Valuation.

Traditional Private Equity (i.e. ‘Leveraged Buyout’ or ‘LBO’) firms make acquisitions using Debt.

The level of Debt that they can raise is typically expressed as a multiple of Debt to LTM EBITDA (or Debt / LTM EBITDA).

Let’s say Lenders are willing to offer 5 Times (or ‘5x’) Debt / LTM EBITDA.

We could then calculate LTM EBITDA to determine the level of Debt that could be raised to fund the LBO transaction.

Let’s say our Acquisition Target generates $100 million of LTM EBITDA.

In that case, the Private Equity firm could raise $500 million ($100 million LTM EBITDA * 5x Debt / EBITDA) of Total Debt to fund the Acquisition.

Debt / LTM EBITDA is the go-to metric for Lenders in Private Equity transactions.

LTM data helps them see the latest Year of EBITDA performance for the Company to lend their money.

Lenders can weigh the latest year of EBITDA against the Debt (i.e. Interest) burden the Company will bear after money is lent.

LTM Revenue and EBITDA tell us what happened in the past.

Lenders to Private Equity deals focus primarily on past performance (or ‘Creditworthiness’) to ensure they will be repaid. As a result, LTM metrics dominate the Debt world.

On the other hand, LTM metrics do not offer insight into what will happen in the future.

As a result, LTM Revenue and LTM EBITDA are not nearly as commonly used in Investment Management.

To be specific, we are referring here to Equity-focused Investment Managers like Hedge Funds and Mutual Funds.

Equity funds are looking to generate returns based on future results.

As a result, they tend to focus on the future performance, which is captured by Next Twelve Months (or ‘NTM’) Revenue and EBITDA.

Equity Research analysts create estimated NTM financials for the Companies they cover. The Analysts then submit their estimates to aggregators like FactSet and Bloomberg.

Individual Investors can find these metrics on Koyfin, an aggregator that offers the same information but for free.

These aggregators then publish the average (or ‘Consensus’) of all the estimates submitted, which are used to create EV / NTM Revenue and EV / NTM EBITDA multiples.

Hopefully, you have a much better understanding of both the LTM Calculation Process and the underlying idea behind LTM Calculations.

LTM metrics are widely used throughout the Finance world, and you can follow our 3-Step Process to calculate LTM Revenue, LTM EBITDA, or any LTM metric.

Let us know if you have any questions in the comments below. We’d love to hear from you!

If you enjoyed this article, definitely check out our video on LTM Revenue and EBITDA.

Find more videos just like this on our YouTube Channel.

Mike Kimpel is the Founder and CEO of Finance|able, a next-generation Finance Career Training platform. Mike has worked in Investment Banking, Private Equity, Hedge Fund, and Mutual Fund roles during his career.

He is an Adjunct Professor in Columbia Business School’s Value Investing Program and leads the Finance track at Access Distributed, a non-profit that creates access to top-tier Finance jobs for students at non-target schools from underrepresented backgrounds.

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