An important component of analyzing individual companies for investment purposes is assessing various financial aspects of its business. In reviewing a company’s revenue, profit, expenses, and other metrics, analysts like to compare the current figures with those realized over the previous 12 months, which is commonly referred to as the trailing 12 months, or TTM.
The financial information that analysts review is culled from quarterly reports that publicly traded companies must file to comply with Securities and Exchange Commission (SEC) requirements. They are known as a Form 10-Q. These financial results also can be found in a balance sheet or an income statement.
Definition and Examples of TTM
TTM allows analysts to measure various performance metrics without waiting for the end of a calendar or fiscal year.
Another benefit of reviewing results from the trailing 12 months, rather than the previous annual report, is that you can compare like months with each other—apples to apples, so to speak. This is important in instances where a company’s sales are seasonal.
For example, if you’re looking at a small business that makes kites, and its sales usually peak in the spring and fall, potential investors or the company’s owners themselves can run a TTM analysis by comparing the income statements from Nov. 1 of the previous year to Oct. 31 of the current year.
In this example, you see that TTM is also useful when applied to privately owned businesses because it can be used by either party to assess whether business is growing, or at least keeping pace with peak periods from the previous year. In addition, TTM can be used by a prospective buyer of a private business to see how sales have grown in the past 12 months.
Alternate name: Last 12 months
On the other hand, leading 12 months (LTM) data aims to predict future performance, such as revenue or profit. It is particularly of interest if a company is introducing a product line, acquiring another company, or in high-growth mode.
Analysts use LTM data to try to forecast short-term future financial performance of a company.
How TTM Is Used
To Measure Performance Any Time of Year
An important step in assessing the financial health of a company is comparing a current metric against the same metric from a prior period. TTM data allows analysts to quantify fluctuations in important performance metrics such as revenue, sales, and profits. Any financial metric that is reported on an income statement or quarterly report can be analyzed, including expenses, price/earnings ratio, or dividend analytics.
Qualify for Loans
Financial institutions may find TTM results more reliable than year-to-date numbers or data from a previous annual report when a business applies for a loan.
Analyze Dividend Distribution Trends
TTM data lets analysts or investors gain a fuller understanding of a company’s dividend distribution trends by comparing monthly or quarterly dividend payouts across the 12-month period being studied.
Investors who are looking for steady income instead of growth like to compare the average returns of stock or bond mutual funds or exchange-traded funds (ETFs) over the trailing 12 months. This is known as the TTM yield. There is no standardized formula for calculating this, so it’s important for investors to be aware of how each TTM yield is calculated to ensure they are comparing apples with apples.
Trailing TTM data is useful for analyzing and comparing investment options as well as for entrepreneurs who want to track business fluctuations over any 12-month period in order to change strategy or plan ahead.
What It Means for Individual Investors
There are numerous strategies for selecting individual companies to invest in. Many investors like to see that a company’s revenue and profits are trending up for the past 12 months and/or costs or debt are decreasing. TTM data with different focuses allows investors to compare current performance with that of the previous 12 months. Among other things, this ensures that seasonal impacts are accounted for, no matter what 12-month stretch is being analyzed.
- Trailing 12 months data allows analysts to compare a company’s financial performance with the preceding 12 consecutive months.
- Tracking and comparing a company’s performance over the past 12 months rather than a fiscal year or calendar year takes into account seasonal sales increases or dips.
- TTM data can measure everything from revenue, sales, and profits to expenses or dividend payments.
- TTM data is also used by accountants at privately held companies to assess financial stability and identify potential concerns or opportunities.