Why Trailing Twelve Months (TTM) Is Important in Finance
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What is Trailing Twelve Months (TTM)?
Trailing 12 months (TTM) refers to the most recent, consecutive twelve months of financial data for a company. It contrasts with the 12 months of fiscal year performance data presented in annual reports.
TTM data is important because it provides an up-to-date view of data, allowing for more effective financial and investment decision-making and responses to financial events.
It helps to neutralize the effects of seasonality and dilutes the impact of non-recurring abnormalities in financial results, such as temporary changes in demand, expenses, or cash flow.
Using TTM figures, analysts, investors, and others get to evaluate the most recent financial data. However, TTM charts are less useful for identifying short-term changes and more useful for forecasting.
Key Takeaways
- Trailing 12 months refers to the past 12 consecutive months of a company’s performance data.
- It’s a more recent view of performance compared to that provided by previous fiscal year data.
- By consistently evaluating TTM numbers, company financials can be evaluated both internally and externally without regard for the artificiality of the fiscal year-end.
- TTM allows for a comparison of a company’s performance trajectory that smooths away inconsistencies.
TTM for Financial Reporting
Companies conducting internal corporate financial planning and analysis have access to detailed and very recent financial data.
They use the TTM format to evaluate key performance indicators (KPI), revenue growth, margins, working capital management, and other metrics that may vary seasonally or show temporary volatility.
By keeping a running tab of TTM metrics, a firm’s management and stakeholders can understand how the company is doing at any point in time using an apples-to-apples comparison.
In other words, by always looking at the most recent, previous 12 months, effects such as seasonality or one-time charges can be smoothed out.
TTM for Equity Research
In the context of equity research and valuation, financial results for publicly traded companies are only released on a quarterly (and yearly) basis in securities filings in accordance with generally accepted accounting principles (GAAP).
These Securities and Exchange Commission (SEC) filings generally display financial results on a quarterly or fiscal year basis rather than TTM.
By contrast, TTM revenue (sales) and profitability (income) metrics show how much money a company brought in and earned over the previous one-year period, regardless of which quarter’s financial statements are being released.
That means that analysts, investors, and anyone else interested in a company’s performance can use the latest figures publicly available to assess the business’ financial health and outlook.
Less frequently, firms provide monthly statements with sales volumes or key performance indicators.
Important
TTM figures can also be used to calculate financial ratios. The price/earnings ratio is often referred to as P/E (TTM) and is calculated as the stock’s current price divided by a company’s trailing 12-month earnings per share (EPS).
Example
To get a clear picture of the past year of performance, analysts and investors often must calculate their own TTM figures from current and prior financial statements. Consider Alphabet (GOOG).
In Q1 2024, Alphabet generated $80.54 billion in revenue compared to $69.79 billion in Q1 2023. The company posted $307.39 billion in revenue for the full year ending Dec. 31, 2023.
Subtract the Q1 2023 figure from the year-end 2023 figure and then add the Q1 2024 figure to that. You arrive at $318.14 billion in TTM revenue.
- $307.39 billion – $69.79 billion = $237.60 billion
- $237.60 billion + $80.54 billion = $318.14 billion
Where Can I Find TTM Figures?
Financial data platforms usually display them. For instance, Yahoo Finance includes some TTM data in its Summary section for a company (e.g., P/E ratio TTM, EPS TTM). Its Financials section shows a variety of TTM figures alongside figures for previous years and quarters.
Can I Calculate TTM Myself?
Yes, you can. The calculation may depend on what financial measurement you’re seeking. But, as an example, you can figure, e.g., revenue TTM by totaling the revenue figures from the current quarter and previous three quarters. Or, you can take the most recent figure for year-to-date revenue, add revenue for the previous entire fiscal year, and then subtract from that sum last year’s figure for the same year-to-date period.
Are Year-to-Date and TTM the Same?
No. Year-to-date is the period that starts at the beginning of the current year and ends at the current date. TTM is the period lasting the entire previous 12 months from the current date.
The Bottom Line
Trailing 12 months is the period of time that extends from the current date back 12 consecutive months.
It provides the most recent financial performance data, as compared to that found in the latest annual report for the previous fiscal year.
TTM is important and can be very helpful to companies, analysts, and investors. They can review the latest data available to make better informed decisions about a company. Additionally, they’ll be able to take more effective actions in response to events that could affect a company’s financial health and success.
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