Run-Rate EBITDA: Formula and When It Is Used

Run-rate EBITDA, explained simply

LTM looks back over twelve months. Run-rate asks what a full year would look like if the business continued at today’s level. It is relevant where the business has changed recently, and it is easy to overstate.

Buyers normally price on LTM and treat run-rate as supporting evidence, after testing for seasonality and for contracts that underpin the recent improvement.

Three views of annual EBITDA

Illustrative

Alder Creek Manufacturing, $ millions

Annualizing the strongest quarter overstates earnings by about $0.5 million, worth $4.0 million at 8.0x.

Calculation

Quarterly run-rate = latest quarter EBITDA × 4
Monthly run-rate = latest month EBITDA × 12

Worked example

Alder Creek, $ millions	EBITDA
Q1 2026	1.1
Q2 2026	1.2
Q3 2026	1.3
LTM to September 2026	4.7
Q3 run-rate (1.3 × 4)	5.2

Alder Creek Manufacturing, Inc. is a fictional company. All figures are illustrative.

The seller argues for $5.2 million and the buyer for the LTM figure of $4.7 million. At 8.0x the gap is worth $4.0 million. Q3 is historically the strongest quarter, at about 28% of annual EBITDA, so the buyer gives run-rate little weight.

Why it matters in a deal

Run-rate can fairly reflect real recent improvements, such as new contracts or price increases. It can also conceal seasonality or an unusually strong quarter.

Red flags

Run-rate based on the single best month
Seasonal businesses annualizing their peak season
No signed contracts behind the recent improvement

Frequently asked questions

What is run-rate EBITDA in M&A?

Run-rate EBITDA takes the earnings of a recent short period, such as the latest quarter or month, and scales them to a full year, to show what the business earns at its current pace.

Is run-rate better than LTM?

Neither is better. LTM is more reliable and run-rate is more current. Buyers usually price on LTM.

Do lenders accept run-rate EBITDA?

Sometimes, subject to limits and strong evidence.

Run-rate EBITDA