TTM Meaning (Trailing 12 Months): Why Is It Important?

Summary:

Trailing 12 months or TTM is a term used to determine a company’s performance using the preceding 12 months of activity rather than an official fiscal year. Investors can utilize several TTM metrics, such as TTM revenue, TTM price-to-earnings ratio, and TTM yield. TTM is a great way to look at the immediate status of a company, as it is seasonally adjusted and also compensates for one-off events that might not be reflective of a company’s true status.

When analyzing the performance and value of a company, many people look at the company’s standard financial reports. In most cases, this takes the form of a quarterly report or yearly report. Every quarter consists of a three-month period (January-March), and every fiscal year analysis uses a standard 12-month period. A fiscal year does not have to be from January 1-December 31, though. Countries, companies, and organizations use different fiscal years depending on their accounting and auditing practices.

The U.S. Securities and Exchange Commission, for example, has certain rules about when companies must release financial reports. Regardless of the timing, the fiscal year must be measured every 12 months, from its start date to its end date. This can give you a basic overall view of a company’s financial performance. Still, in order to give you a more immediate view of a company’s situation, metrics such as TTM can be extremely helpful.

What is TTM?

TTM stands for “trailing 12 months,” which measures a company’s performance based on the preceding 12 months rather than an official fiscal year. Analysts and investors use TTM alongside various other forms of financial due diligence. For example, if an equity researcher wants to produce a TTM for a company in July 2022, then its TTM data would start from July 2021-2022. This allows analysts to snapshot a report card on the immediate status of a company’s financial situation and growth prospects.

How is TTM used?

Investors use TTM to calculate the immediate status and outlook of a company. Trailing 12 months figures are created using the last interim or quarterly report a company released before the date in question. An equity analyst will use TTM to calculate large amounts of financial data, including income statements, balance sheets, cash flow, and debt/liability ratios. Offering this data for the previous 12 months rather than the fiscal year, allows analysts to determine more accurate company metrics such as a true price-to-earnings ratio.

One of the reasons analysts favor TTM over traditional financial reports is that they are seasonally adjusted. Second, the way that companies release their official reports for the fiscal year requires chopping up information from other quarters to create a picture that in some ways is “financially engineered.” Furthermore, an annual report or interim report could contain outdated or irrelevant information. To put it simply, TTM offers a much clearer picture of the current status and future trajectory of a company.

TTM metric examples

TTM is a method used to analyze large swaths of financial data to obtain values for metrics that financial research analysts commonly use. Many analysts will simply use a formula in which TTM equals the most recent year-to-date period plus the last complete fiscal year minus last year’s year-to-date period. Some of these are as follows:

TTM revenue

TTM revenue represents a company’s total revenue and revenue growth for a 12-month period. For a SaaS (software as a service) company, this could be all the subscriber fees that the company collects. For companies that sell physical products, it could be the net sales. The advantage of TTM revenue is that it illustrates the immediate revenue situation of the company and refrains from using data from previous financial statements that might be outdated.

Formula: TTM revenue = current Q earnings, + Q1 earnings + Q2 earnings + Q3 earnings

TTM yield

TTM yields are used to calculate a company’s dividend or yield that it distributes to investors. When looking to analyze ETFs, for example, TTM yield analysis can be very effective. TTM yields are calculated by taking the weighted average of yields that make up its portfolio over the last 12 months.

Formula: TTM yield = current Q yield + Q1 yield + Q2 yield + Q3 yield/4

TTM P/E ratio

TTM price-to-earnings ratio is calculated using the earnings per share of the last four quarters. This is also referred to as a “trailing P/E .” The stock price divided by the earnings per share over the last four quarters gives you the TTM P/E ratio. The TTM P/E ratio gives you a clearer picture of the immediate value of the company by using the most recent data available.

Formula: TTM P/E ratio = price per share/earnings per share over the previous 12 months

Pro Tip

Along with a TTM P/E ratio, analysts will sometimes also use something called a “forward P/E ratio.” A forward P/E ratio is used to predict the future rather than analyze the past. Forward P/E ratio = price per share/forecasted EPS over the next 12 months. A TTM P/E is generally very beneficial when calculating a forward P/E as it gives more accurate, up-to-date data for analysts to base their future assumptions on.

Why is TTM sometimes superior?

TTM is considered a superior metric to use because it reflects certain factors that are not correctly reflected in traditional financial reports. Some of these include:

Seasonality

Seasonality relates to a period of time every year when a business experiences events that affect cash flow and operations. For instance, companies in the ski industry will have completely different financial pictures during ski season than during the summer. They will surely have more overhead and more paying customers during ski seasons as opposed to the summer.

Working capital and cash flow

Even if a company had a stellar report at the end of the fiscal year, it doesn’t mean that this is the situation that they face now. Particularly when it comes to working capital and cash flow, this is important. For example, if working capital is being affected by a rise in interest rates on a company’s debts, this might not be reflected in the previous financial reports. This can be key for shareholders and investors when measuring a company’s KPI, or key performance indicators.

One-off events

Sometimes one-off events, such as a change in regulation, financial meltdowns, or black swan events, can have a tremendous effect on a company that is not reflected in the previous report. Take the private tutoring industry in China, for example. In 2021, China outlawed private tutoring, greatly affecting several large, publicly listed companies. If you did a TTM analysis in August, the figures would be drastically different than the ones from the last quarterly or yearly report before the change in regulation.

TTM or. LTM?

LTM, or the last 12 months, is a similar metric that is used alongside TTM. There is one important difference, however. “Trailing twelve months” refers to a period starting today and moving back in time for a year. “Last twelve months” refers to a period starting at any point in time and moving back a year. Although they both measure similar KPIs, the difference is the starting point in time.

Whether you have reviewed a company’s TTM and are ready to invest or just want some help reaching your financial goals, these investment advisors can help.

FAQ

What is a TTM example?

Let’s say it’s July, and you want to invest in a company. The most recent annual report you can find on that company is from last December. You would calculate a company’s TTM by using the financial data from the last 12 months before July.

What is a TTM report?

A TTM report measures various KPIs from the preceding 12 months to report on the company’s performance and viability.

Should I use TTM?

TTM reports are mostly made by professional financial and equity analysts. They will usually have access to recent data that sometimes retail investors cannot come by. However, if you are able to get the data for TTM and know how to use it, it is yet another tool in the toolbox to help you invest.

How do you read TTM?

A TTM is just the way to measure a metric such as yield or P/E ratio. You would read it the same as you would a standard P/E ratio. However, there are certain phenomena in trading, such as TTM squeezes, that can be read a different way. That is more relevant to individuals who trade assets on a regular basis.

What does TTM mean in a text?

In the world of texting, TTM refers to “talk to me,” as in “answer me right now.” This is completely different than TTM in the world of finance.

Key takeaways

  • Trailing 12 months or TTM is a term used to determine a company’s performance using the preceding 12 months of activity rather than an official fiscal year.
  • TTM can be used to measure yield, price-to-earnings ratio, and revenue. The metrics are all found using the preceding 12 months of financial activity.
  • TTM can help adjust for the season and gives the analyst or investor a better idea of current working capital and cash flow. It can also help mitigate one-off events such as changes in regulation or a general financial meltdown.
  • TTM is similar to LTM in that they both measure a 12-month period. However, you calculate TTM from the start of today, whereas LTM can be any given 12-month period.
View Article Sources
  1. China Bans For-Profit Tutoring – China Briefing
  2. Shareholder vs. Stakeholder – SuperMoney
  3. Black Swan Event in the Stock Market – SuperMoney
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