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Trailing Twelve Months (TTM)-Never Fooled by Year End Data

Kyle DennisKyle Dennis ·

guy looking at ttm revenue with calculator

Trailing twelve months (TTM) is a term representing the most recent/ last 12-months of data used for financial reporting. However, it does not typically represent a fiscal year, since it is calculated to show the most recent data.

As a result, it is an effective way to analyze financial data in an annualized format. Allowing you to analyze a full year’s worth of financial data at any point in the year.

Using different methods to check a company’s financial health gives you a more well-rounded look at what’s going on. One way to do that is by using trailing twelve months figures.

Analysts often use TTM to analyze data from financial statements. such as the balance sheet, income statement, and statement of cash flows. Quarterly reports do not show a full year of data. So in order to keep an eye on a full year of current data, they use the TTM.

Typically it measures past revenues or profits. However, it can be used to look at other financial metrics as well.

Know it and Use it – Trailing Twelve Months

If you rely on last year’s numbers, you will be using data that is outdated. Especially the further into the new year you get. This is where the trailing twelve months calculations are useful. By looking at income for the most recent 12 months, you will be reviewing current numbers. As well as taking into account seasonality and current growth. Which in turn will help you make more informed investment decisions.

kyle dennis ttm

Usefulness of TTM

Below are three reasons why using trailing twelve months when analyzing data is recommended over the year-end numbers:

  • Eliminate Seasonality-
    • Using TTM in your analysis provides more consistency by looking at current numbers over a longer period than just a quarter. For this reason, seasonal fluctuations in the business will be smoothed out.
    • When conducting financial analysis, this provides a more accurate picture of a company’s economic health.
  • Track Indicators-
    • Trailing twelve months data shows trends that help you quickly track important indicators such as:
      • Gross profit
      • Net income
      • Total income
    • With this, you will be aware of any growth and/ or decline from the most recent 12 months. In other words, you are aware of changes earlier.
  • Up to date financial information-
    • TTM provides the most up to date information on the financial health of the business
    • Evaluating a company’s economic performance, you will know its current financial position without waiting till year end. When it may be too late.
    • This is more accurate than using the current year to date figures, as well, because they don’t show a full year’s data. until year end that is…

Internal Business Managers

To business managers, the trailing twelve months data provides them with detailed and recent financial data for the internal audits, financial analysis, and corporate planning.

TTM is useful for evaluating:

  • revenue growth
  • margins
  • sales and expense trends
  • working capital
  • key performance indicators and other financial metrics

Companies evaluate these trends using up to date information letting them better manage their resources. As well as plan for the future and make changes to fix problems that show up along the way.

As an investor, it is a good idea to look at how a company is tracking their trends and whether they are improving them or not.

Creditors

Creditors and lenders perform their credit analysis as needed at any point during the year. When conducting this analysis they need an accurate picture of the company’s financial health.

For this reason, they use the trailing twelve months data as part of their method to evaluate the company’s health and assess whether to provide a loan.

ttm

Traders and Investors

Sock prices change on a daily basis. The numbers you use should change as well. You will look at values and performance metrics. But using year-endresults, you are a step behind.

Since they come out once a year, the annual reports are not current at any other time. The last 12 consecutive months will provide you with a number that is both current and seasonally adjusted. Thus you should use the TTM for a more relevant measure in your analysis.

When you are looking at financial ratios, try calculating them using the trailing twelve months data. For example, an often-used ratio in stock analysis is the price/ earnings ratio (P/E ratio). Using this ratio with the TTM earnings will provide a better relationship to the ever-changing stock price.

It is calculated using the stock’s current price and dividing it by the company’s trailing twelve months earnings per share (EPS). Instead of a stagnant ratio from once a year earnings. This provides a way to relate the current stock price to current earnings.

Fundamental analysis is about comparing measurements against like measurements from a prior term. This is to see how much growth was realized over that period.

You may compare two companies that both report $1 billion in income on their year end income statement. On the surface, they seem equal. But one of the companies grew from $500 million to the $1 billion in the past 12 months. While the other’s earnings decreased from $1.5 billion to $1 billion over the same period.

By comparing changes over the period you can see a big difference in the growth rate. And potentially the future projections of growth going forward. TTM lets you keep up with the changes as they are happening.

 Calculating TTM

Analysts use TTM to analyze data from financial statements such as the income statement, balance sheet, and statement of cash flows. However, the way they are calculated is related to the financial report being used.

Typically TTM is calculated using the following approaches:

  • Income statement
    • For quarterly reporting, simply take the last 4 quarterly values and add them together. Publicly traded companies report income quarterly. For line items on the income statement (revenues, expenses, and net income) analysts sum the last 12 months.
  • Balance Sheet
    • The balance sheet can be run at any time and is a “snapshot in time” of a company’s assets, liabilities and shareholder’s equity. thus, it is compared to the balance sheet data from one year ago.
    • For this reason, you calculate the TTM by running a balance sheet as of the ending date for the 12 month period you are analyzing.
  • Cash Flow Statement
    • The cash flow statement is a running total of your company’s operating, investing, and financing cash flows.
    • It’s similar to the income statement but also includes changes to the balance sheet over the last 12 months
    • Ultimately TTM is calculated the same way as the income statement, adding quarterly figures to get the last 12 months of data.

ttm

Example Time

Financial results for publicly traded companies are released on a quarterly basis in accordance with generally accepted accounting principles (GAAP).

The Securities and Exchange Commission (SEC) filings display financial results on a quarterly or year to date basis rather than a trailing twelve months.

To get a clear picture of the last year of performance, you will often have to calculate your own TTM figures from current and prior financial statements.

Consider company XYZ. Recent financial results:

  • In Q1 last year, they generated $2 billion in revenue
  • Last year, full year revenue came in at $12 billion
  • This year’s Q1 revenue came in at $1 billion

By subtracting last year’s Q1 figure ($2 billion) from last year’s full year end figure ($12 billion) and adding the current Q1 revenues (1 billion), you arrive at $11 billion in TTM revenue.

TTM calculation graph

As well, you can simply add the revenue from past 4 quarters and get the same result:

TTM calculation

Conclusion

You can use the trailing twelve months (TTM) to provide insights into a company’s recent performance and current financial health. It gives you the data from the past 12 consecutive months commonly used to calculate financial ratios.

As such, you can see trends that can help determine whether a business is growing or failing. the TTM figures provide investors with a number that is both current and seasonally adjusted.

Companies use it to make strategic decisions that drive performance.

This is helpful for business owners, potential investors, creditors, financial analysts, auditors and more.

Pay attention to this number the time you are analyzing stock and comparing data.

 

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