TTM stands for "trailing twelve months," a term used in finance and accounting to refer to a company's performance over the past year. Specifically, TTM calculates figures from the previous four quarters to provide a more current view of the business compared to only looking at the last full fiscal year.
TTM shows how the company is doing recently, smoothing out any seasonal fluctuations or one-off events. This gives investors and stakeholders a better idea of the overall financial health and growth trends, rather than relying on potentially outdated annual data.
What is TTM?
TTM, or trailing twelve months, refers to the previous 12 consecutive months of a company's financial data. It is computed by summing the figures from the latest four quarterly or 12 monthly reports. The goal is to provide a current view of the business's finances, achievements, and direction.
Some key characteristics of TTM:
- Based on previous 12 continuous months
- Provides updated view compared to annual figures
- Removes impact of seasonal changes
- Reflects latest business performance trends
Why Use TTM?
There are several advantages to using TTM rather than only annual data:
- Timeliness - TTM shows more recent performance over the past year, whereas annual data could be almost 12 months old. This allows stakeholders to see the company's current situation.
- Accuracy - Significant growth or decline might only show up when reviewing TTM compared to outdated annual figures. It prevents decisions based on obsolete information.
In summary, TTM offers a transparent look at the company's up-to-date financial position and performance trends.
Uses of TTM
There are many ways TTM can be utilized by various stakeholders:
- Compare Companies - Evaluate growth trends across competitors using each company's TTM revenue or earnings. This creates an apples-to-apples view.
- Identify Issues - Declines visible in TTM figures can reflect business challenges not obvious in older annual reports. It helps spot potential problems sooner.
- Financial Projections - TTM creates a baseline that analysts can use for estimating future period performance and valuation models.
- Assess Progress - Compare TTM with previous years to quantify growth rates and benchmark against targets. This evaluates overall direction.
- Investor Communications - In investor presentations or reports, TTM shows recent performance. This achieves transparency for stakeholders.
In summary, TTM allows more insightful comparison, performance measurement and decision-making using the most recent data available.
How to Calculate TTM
While there is some flexibility in computing TTM, here are the typical steps:
- Obtain financial statements for the most recent 4 quarters or 12 months
- Sum the revenue, net income, cash flows etc. over that period
- The total represents the TTM figure for that metric
- Can compute growth rates or run diagnostics using TTM values
What Can TTM Measure?
Some key items that TTM can evaluate include:
- Revenue - TTM revenue indicates sales increases/declines over the past year. This measures market traction.
- Earnings - TTM earnings show profitability trends and whether operations are improving.
- Operating Cash Flows - Cash flow TTM determines recent cash generating ability and financial health.
- KPIs - Any KPI can be tracked using TTM to assess progress over the last 12 months versus longer periods.
- Growth Rates - Compare TTM with past years to quantify acceleration, stagnation or declines in key metrics.
- Ratios - Financial ratios like P/E use TTM earnings within its calculation to represent current valuation.
In essence, TTM provides visibility into all parts of the financial statements and key performance indicators over the trailing year.
While useful, TTM has limitations to consider:
- TTM is still the past - It may not perfectly predict the next 12 months
- Seasonality impacts - Sales seasonality can skew TTM if not adjusted properly
- One-time events - Unusual one-off items can also distort TTM so adjustments are needed
- Early-stage businesses - TTM works better for mature companies versus startups with erratic metrics
Thus, while TTM delivers a recent financial view, further analysis may be required depending on these factors.
TTM, or trailing twelve months, provides stakeholders and analysts a valuable updated look at company financials over the last year. It minimizes obsolete information that accompanies only using annual data. TTM demonstrates recent performance across vital metrics like earnings, cash flows and growth rates. By smoothing seasonal fluctuations and revealing the latest trends, TTM enables smarter comparison, evaluation and planning. While some context is required when applying TTM, it has become a fundamental tool for assessing businesses in a timely manner.
Meow Technologies is a financial technology company, not a bank or FDIC-depository insured institution. Likewise, Meow Technologies is not an investment adviser and none of the information presented herein should be relied upon as financial advice or a recommendation to make any financial decision nor should it be considered to be tax or legal advice. The information is the opinion of Meow Technologies for educational purposes and may not be suitable for all companies. Products, like the one described herein, are offered through Meow Technologies and are not advisory services which are only offered through Meow Advisory, LLC.** The FDIC’s deposit insurance coverage only protects against the failure of an FDIC-insured bank.**