Trailing Twelve Months (TTM)

Trailing Twelve Months (TTM) is a financial metric that represents a company’s financial performance over the past 12 months. It’s a rolling calculation that takes into account the most recent four quarters of a company’s financial data.

TTM is also known as the “last 12 months” or “LTM” calculation.

How to Calculate Trailing Twelve Months

Calculating TTM is relatively straightforward. You’ll need to gather the following financial data for the past four quarters:

• Revenue
• Net Income
• Earnings Per Share (EPS)
• Other relevant financial metrics (e.g., operating income, cash flow)

Once you have this data, add up the values for each metric over the past four quarters. This will give you the TTM value for each metric.

Take a company with quarterly revenue of $2.0B, $2.2B, $2.1B, and $2.5B over the last four quarters. TTM revenue is the sum: $8.8B. When a new quarter reports $2.6B, the oldest quarter drops off and TTM becomes $9.1B. The figure always rolls forward.

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Why is Trailing Twelve Months Important?

TTM is a valuable metric for investors and financial analysts because it:

1. Provides a recent snapshot: TTM gives you a clear picture of a company’s recent financial performance, helping you understand its current trends and momentum.
2. Smooths out seasonality: By summing data over 12 months, TTM smooths out seasonal fluctuations, providing a more accurate representation of a company’s financial health.
3. Facilitates comparisons: TTM enables you to compare a company’s current performance to its past performance, as well as to industry peers and benchmarks.
4. Informs investment decisions: TTM can help investors make more informed decisions by providing a timely and accurate assessment of a company’s financial performance.

TTM vs. Fiscal Year

A company’s fiscal year is fixed. If the fiscal year ended nine months ago, its annual numbers are nine months stale. TTM uses the latest four quarters, so it is never more than three months old. That is why most valuation ratios, including the price-to-earnings ratio, are quoted on a TTM basis: the “E” in P/E is trailing-twelve-month earnings.

What TTM Cannot Do

TTM has two blind spots. First, it does not apply to balance sheet items. Cash, debt, and inventory are snapshots at a point in time; you cannot sum four quarters of cash to get anything meaningful. TTM is for flows (revenue, earnings, cash flow), not stocks. Second, TTM is backward looking. A one-time windfall, an asset sale, or a terrible quarter all sit inside the number for a full year, flattering or punishing the company long after the event. Read the quarters behind the number before trusting it.

Common Uses of Trailing Twelve Months

TTM is commonly used in various financial applications, including:

1. Stock analysis: Investors use TTM to evaluate a company’s recent financial performance and estimate its future growth prospects.
2. Financial modeling: Financial analysts use TTM to build financial models and forecast a company’s future performance.
3. Credit analysis: Lenders and credit analysts use TTM to assess a company’s creditworthiness and determine its ability to repay debts.
4. Mergers and acquisitions: TTM is used to evaluate the financial performance of potential acquisition targets.

Trailing Twelve Months (TTM) is a powerful metric that provides valuable insights into a company’s recent financial performance. By understanding how to calculate TTM and its importance in financial analysis, investors and financial analysts can make more informed decisions and stay ahead of the curve. Whether you’re evaluating a stock, building a financial model, or assessing creditworthiness, TTM is an essential tool to have in your financial toolkit. Most index funds hold companies priced on TTM earnings multiples.