Wajiha Danish | December 21 2022
Being a small business owner, it is extremely important to compile and report your financial data accurately. When you have complete clarity about your finances, you can check out the insights of the business and also determine the areas which require improvement.
You might have heard about trailing twelve months or TTM. TTM or trailing twelve months is a way of checking out the performance of a public company over a time period of twelve months.
Dig in to find out more.
TTM or Trailing twelve months is a distinctive way of looking at the performance of a company over a passage of 12 months.
TTM is a term that describes the performance data of a company for consecutive 12 months regardless of calendar constraints
It is a reading of a firm that provides a price-to-earnings ratio, revenue, or earnings. TTM gives the analysts and the investors a comprehensive way of analyzing the data that is not tied to the fiscal year of the company.
The data retrieved from TTM is often in the form of cash flows, income statements, and balance sheets. However, it is notable that the TTM data may be different from the financial statements.
For instance, an analyst might need to report the earnings of a company on a quarterly basis like equity research. Investors on the contrary might demand access to information about stock prices and other financial data on a daily basis. This is where TTM becomes relevant. The most recent financial data can be shared with analysts and investors.
In the majority of cases, the TTM measure is reported on the balance sheet. It is usually compiled on a quarterly basis and is in complete compliance with the Generally Accepted Accounting Principles (GAAP).
However, this rule doesn’t apply to all of the items as there are line items like dividend payments, working capital, and capital expenditures that need to be worked out differently than the quarterly-based ones. Analysts take their average on the first and last quarter and treat these items based on the feeding financial statement.
TTM revenue is the revenue that is earned over a period of 12 months of the business. This data is very important as it is used to determine whether the company is going towards meaningful growth or not. As this data showcases exactly where the revenue is generated therefore it helps in analyzing the growth rate.
A TTM yield is referred to the total percentage of the income that the portfolio returns to its investors. This is again based upon 12 months. The TTM yield is used to analyze things like an Exchange-Traded Fund (ETF) or the mutual fund’s performance. For a specific fund, the TTM yield is calculated by taking the average of the yields in the portfolio of assets.
Public companies release their financial reports on a quarterly basis and that too in the form of security filings. Part of these filings contains the financial statements which feature the trailing twelve month metrics. These TTM metrics are updated on a quarterly basis as per the ruling of GAAP.
TTM format provides a key tool to companies that are working on financial planning, as it incorporates the most recent data of finances that are available. TTM is exceptionally useful when it comes to evaluating things like profit margin, revenue growth, or working capital which is bound to fluctuate around the year depending on seasonal variables.
When it comes to managers of the company, TTM metrics provide a forensic view of the financial health of the company. The managers can examine the previous 12 months and determine the consistency of growth depending on seasonality, one-time charges, temporary volatility, etc.
The TTM figures are calculated by using the most recent YTD (year-to-date) period, as well as the fiscal year minus the previous year’s YTD period. It is very important to use a year-to-date period and not the latest quarter to get the exact picture.
The trailing twelve months’ profit and loss keep on running with regards to the investment and project to check its performance with relevance to the previous twelve-month period. It usually takes quarterly or monthly returns over that specific period to know the exact profit or loss stats.
Trailing twelve months is a common term to help a company analyze its performance data over a period of 12 months. This is crucially important because it helps report the financial figures and forecast a true picture of the company’s growth.
TTM is most commonly used by investors and financial experts.
This data is used mainly to have a better understanding of income statements, cash flows, and balance sheets. TTM is very useful as a clear standard as it provides companies with monthly statements with details and performance indicators to have better insights.
Wajiha is a Brampton-based CPA, CGA, and Controller with 17+ years of experience in the financial services industry. She holds a Bachelor of Science Degree in Applied Accounting from Oxford Brookes University and is a Chartered Certified Accountant. Wajiha spearheads Monily as its Director and is a leader who excels in helping teams achieve excellence. She talks about business financial health, innovative accounting, and all things finances.