Understanding Trailing Twelve Months (TTM) in Finance

Has someone ever asked you to send your TTM ASAP? You’ll often see TTM figures mentioned in company earnings reports, financial statements, and financial news articles, but have you ever wondered what it means?

In this article, we’ll explain the concept of TTM (Trailing Twelve Months) and demystify its use in the world of financial analysis! 

We’ll also delve into the mechanics of calculating TTM figures to help you grasp the process.

So, whether you’re a finance professional or just interested in the subject, join us as we unravel the intricacies of Trailing Twelve Months in finance!

What Is Trailing Twelve Months (TTM)?

Trailing Twelve Months (TTM) is a crucial accounting term that denotes the most recent 12-month period of a company’s financial performance, utilised for reporting financial figures. Distinct from a fiscal year, TTM:

• Is independent of a company’s fiscal year-end, focusing on the latest 12 months.
• Offers an up-to-date reflection of financial health, more so than annual or year-to-date reports.
• Mitigates the impact of seasonal variations, providing a balanced view over a full year.

TTM is instrumental in evaluating key financial metrics such as revenue, earnings per share (EPS), debt-to-equity ratio (D/E), and price-to-earnings ratio (P/E). This approach allows for a nuanced assessment of a company’s current performance trends and momentum. It is particularly useful for comparing companies that may have different fiscal year ends, ensuring a level playing field for analysis.

Calculating TTM involves gathering data from financial statements—balance sheets, income statements, and cash flow statements. This data is then used to generate ratios or reports that paint a detailed picture of the company’s financial standing. 

Importance of TTM in finance

TTM (Trailing Twelve Months) is crucial for providing an up-to-date reflection of a company’s financial performance, particularly when past fiscal data fails to capture the current state due to rapid growth or downturns. By offering a recent snapshot, TTM overcomes the limitations of outdated figures, ensuring that financial analyses remain relevant and reliable.

In evaluating key performance indicators (KPIs), TTM proves indispensable. It allows for timely assessment of progress towards financial targets, minimising the distortions caused by seasonal variations or specific events within the past year. This timeliness is essential for informed internal decision-making and enhances the quality of reports shared with stakeholders and investors.

Calculating TTM Figures

The calculation of TTM figures is a detailed process that begins with the identification of key financial data points, primarily focusing on sales or revenue. This crucial step involves gathering data from various financial documents, including the annual report (10K), the most recent quarterly report (10-Q), and, notably, the profit and loss account. The profit and loss account, a critical component of the income statement, provides comprehensive insights into the company’s revenues, expenses, and profits over the period, making it indispensable for accurate TTM analysis.

Calculating TTM figures requires a systematic approach:

Step 1: Identify Your Data Points

The first step is identifying the data you wish to measure, usually sales or revenue figures. Once you’ve identified the data, you must gather the relevant financial statements. These are produced annually or within a set financial period.

Step 2: Extraction 

To update financial data accurately, begin by retrieving the 12-month figures from the most recent Annual Report (10K). Then, deduct the figures for the preceding 3-month period as reported in the last quarterly report (10-Q). Finally, incorporate the data for the current 3-month period from the newest quarterly report (10-Q) to ensure the information reflects the latest financial status.

TTM = 10K Data + 10Q Current Data – 10Q Prior Data

Step 3: Calculate

The last step is to perform the calculations. This involves subtracting the figures of the first quarter of the previous year from the full-year data of the current year and adding the information for the first quarter of the current year. This will give you the TTM data. It’s important to note that this process may need to be adjusted depending on the chronological period you’re examining.

Examples of TTM calculations

Let’s delve into a practical illustration of TTM calculations. Suppose a company’s quarterly revenue for the past four quarters are as follows: Q1 – £20 million, Q2 – £25 million, Q3 – £30 million, and Q4 – £35 million. 

Calculating TTM Revenue

To calculate the TTM revenue, one would simply add up these figures, resulting in a TTM revenue of £110 million. This figure provides a more comprehensive view of the company’s performance over the past year, eliminating the impact of seasonal fluctuations.

TTMRevenue = Q1+Q2+Q3+Q4

Calculating TTM Earnings Per Share (EPS) 

Another example could be the calculation of TTM earnings per share (EPS). If the EPS for the last four quarters is £0.5, £0.6, £0.7, and £0.8, respectively, the TTM EPS would be the sum of these, which is £2.6. This figure is particularly significant for investors as it provides a more accurate reflection of the company’s profitability over the past year.

TTMEPS = EPS Q1+EPS Q2 +EPS Q3 +EPS Q4

​Calculating TTM Gross Margin

Lastly, the calculation of TTM gross margin is considered a key indicator of a company’s profitability. If the gross margins for the past four quarters are 20%, 25%, 30%, and 35%, respectively, the TTM gross margin would be the average of these figures, which is 27.5%. This figure provides a more reliable measure of the company’s profitability, mitigating the impact of seasonal variations and one-off events.

TTMGrossMargin= (GM Q1 +GM Q2 +GM Q3+GM Q4)/4

The Advantages and Limitations of TTM

Using TTM (Total Twelve Months) data in financial forecasting has both advantages and limitations. 

Pros of Using TTM in Financial Forecasting

• TTM Provides a More Comprehensive View: TTM provides a comprehensive snapshot of a company’s performance over the previous year, capturing fluctuations and trends that quarterly or annual reports may overlook. This comprehensive view ensures a more accurate assessment of financial health.
• TTM Mitigates Seasonal Fluctuations: By encompassing the past twelve months, TTM data effectively neutralises the impact of seasonal variations and one-off events, presenting a stable foundation for forecasting future performance.
• TTM Is Good For Comparative Analysis: TTM facilitates direct period-to-period comparisons, aiding analysts in spotting patterns and refining the accuracy of financial forecasts.

Cons of Using TTM in Financial Forecasting

• TTM Can Paint Skewed Picture: TTM can sometimes present an inaccurate view of a company’s financial health due to one-off events or anomalies, potentially leading to overestimated future profitability.
• TTM Is a Backward-Looking Measure: As TTM focuses on past performance, it doesn’t predict future trends or account for upcoming market shifts, which could significantly affect financial outcomes.
• Potential Misinterpretation: Relying solely on TTM without integrating other financial indicators can misinterpret a company’s fiscal status. It’s crucial to analyse TTM data within the broader financial context to avoid misconceptions.

In other words, while TTM data is a valuable tool in financial forecasting, it’s necessary to identify its limitations and use it in conjunction with other relevant metrics. By doing so, analysts can gain a more nuanced understanding of a company’s performance and make more informed decisions about future prospects.

Final Thoughts

The significance of Trailing Twelve Months (TTM) in contemporary finance is immense. It offers an enhanced perspective on a company’s financial status, facilitating better strategic planning and forecasting. However, a comprehensive understanding of its advantages and limitations is essential to fully leveraging its potential.