Everything You Need to Know About TTM

Investors and financial analysts are constantly searching for metrics that can help them better understand a company’s financial performance. One such metric is the Trailing Twelve Months (TTM) calculation.

What is TTM? TTM is a powerful tool that takes into account a company’s financial data from the previous four quarters and is regularly updated to reflect the latest performance of the company – contrary to annual filings and reports that might be displaying outdated information.

By looking at a company’s TTM data, investors can gain insights into its current financial health, growth prospects, and competitive position. In this article, we’ll take a closer look at TTM, including what is TTM, how to calculate TTM, and how it’s used in the world of finance.

What Is Trailing 12 Months (TTM)?

Trailing Twelve Months (TTM), also known as last 12 months (LTM), is a financial metric that measures a company’s performance over the last twelve months. As the name suggests, TTM takes into account the trailing twelve months of financial data, typically ending with the most recent quarter. This metric is particularly useful because it offers a comprehensive view of a company’s recent financial performance, allowing investors to see trends and changes over time.

TTM is calculated by adding up the financial data from the four most recent quarters and using that sum as the basis for analysis. The data included in TTM calculations may vary depending on the company and industry, but typically includes revenue, net income, and earnings per share (EPS), among other key metrics.

By analyzing a company’s TTM data, investors can gain valuable insights into its financial performance, such as whether it is growing or declining and how it compares to its competitors. This information can be used to make more informed investment decisions, as well as to identify potential risks and opportunities for growth.

When Not to Use TTM

While TTM is useful in a number of scenarios, there is one instance where it shouldn’t be used, and that is when calculating your tax liability for the year. Tax liability is calculated based on the annual business for the current year, so if you use any other metric, including TTM, it might cause you to pay too little or too much in taxes.

How to Calculate TTM?

Calculating TTM can be done in a few simple steps. To begin, you’ll need to gather the financial data for the previous four quarters. This typically includes the company’s revenue, net income, and EPS, among other key metrics.

Once you have this data, add up the values for each metric over the previous four quarters. For example, if you were calculating TTM for the period from January 1, 2021, to December 31, 2022, you would add up the financial data for the four quarters ending on December 31, 2021, September 30, 2021, June 30, 2021, and March 31, 2021.

Once you have the sum of the data for the previous four quarters, you can divide each metric by the appropriate number of shares outstanding to calculate EPS, if necessary. This will give you the TTM for each metric, which can be used to analyze the company’s financial performance over the past year.

The simplest TTM formula is as follows:

TTM Financial Data = Latest Fiscal Year Data + Current YTD Data – Prior YTD Data

It’s worth noting that TTM is a dynamic metric that changes as new financial data becomes available. As each new quarter ends, the oldest quarter is dropped from the calculation, and the most recent quarter is added, creating a rolling 12-month period of data.

Calculating TTM can be a useful exercise for investors looking to gain a deeper understanding of a company’s financial health, as well as for financial analysts who use TTM to calculate various financial ratios.

Where to Find TTM Measures?

The 12-month metric is usually included in a firm’s balance sheet, which is usually updated every quarter to adhere to GAAP regulations. However, some experts may calculate an average of the first and last quarters.

A balance sheet is a professional financial statement that presents a company’s assets, liabilities, and shareholder equity at a particular moment in time. Its purpose is to aid investors in determining the return rates and assessing a company’s capital structure.

Essentially, this statement offers a quick overview of a company’s assets, debts, and shareholder investments. It can be used in combination with other crucial financial statements to conduct fundamental analysis and calculate financial ratios.

Every company’s balance sheet uses an intuitive formula, where assets are listed on one side and liabilities along with shareholder equity are listed on the other side to ensure a balanced outcome. The equation looks as follows:

Assets=Liabilities+Shareholders’ Equity

In order to accurately analyze the cash flow statement, you need to consider the financial statement from which each line item is derived. For instance, you can calculate working capital by taking an average of the balance sheet line items.

On the other hand, depreciation is subtracted from income every quarter, so you have to look at the income statement for the previous four quarters when examining this figure. It is important to keep these factors in mind when analyzing the cash flow statement in a professional manner.

How Is TTM Used in Finance?

TTM is used in various ways in the world of finance, including as a basis for calculating financial ratios and for making investment decisions.

One way TTM is used is to calculate financial ratios, which are used to assess a company’s financial health and performance. For example, the Price-to-Earnings (P/E) ratio, which measures the price of a stock relative to its earnings, is often calculated using TTM earnings per share. By using TTM data, investors can gain a more accurate view of a company’s earnings over the past year, which can be used to make more informed investment decisions.

TTM is also used as a basis for making investment decisions. Investors may use TTM to identify trends in a company’s financial performance and to assess its growth prospects. For example, if a company’s TTM revenue and net income have been consistently increasing over the past year, this may indicate that the company is growing and may be a good investment opportunity. By using TTM data, investors can gain a more realistic view of the company’s financial health, which can be used to make more informed investment decisions.

Another way TTM is used in finance is to compare a company’s performance to its competitors. By analyzing the TTM data of multiple companies in the same industry, investors can gain a better understanding of how a company stacks up against its peers. This information can be used to identify potential investment opportunities or to assess the competitive position of a company.

TTM – Example

Analysts and investors often have to calculate their own TTM figures from current and prior financial statements to get a clear picture of a company’s performance over the last year. Let’s take a look at a real-life example – General Electric.

Company A reported that it generated $30 billion in revenue in Q1 2024, which is less than its reported revenue in Q1 2023, when it earned $35 billion. Its yearly revenue for 2023 was $150 billion. To calculate the TTM, you need to take the yearly revenue – $150 billion and deduct Q1 2023 revenue. You’ll be left with $115 billion. Now, add the Q1 2024 numbers to it – you’ll end up with $145 billion.

Final Thoughts

Overall, Trailing Twelve Months (TTM) is a powerful financial metric that is widely used in the world of finance. By providing a comprehensive view of a company’s financial performance over the past year, TTM can be used to make more informed investment decisions and to assess the financial health and growth prospects of a company.

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