Investors often evaluate the financial performance of a company by looking at the company's sales, expenses, and net income over the past 12 months or trailing twelve months (TTM).
TTM Meaning
TTM stands for "trailing twelve months" and refers to the past 12 months of recorded performance for a business. Investors assessing a company's revenue level often cite the total revenue realized over the past 4 quarters. TTM do not often line-up with calendar years, except when studying data for a period ending December 31.
Expenses, net income and other metrics can also be cited on a TTM basis.
Some businesses are subject to seasonality, making them vulnerable to overestimations or underestimations based on the results from just the past quarter. Data sourced from the past twelve months shouldn't be exposed for biases caused by seasonality.
TTM Price/Earnings
Often referred to simple as a trailing price-to-earnings (P/E) ratio, the TTM Price/Earnings can be calculated by taking a recent stock price and dividing it by the company's cumulative earnings per share from the previous four quarters. This helps investors assess how expensive a stock is in relation to its earnings performance.
TTM Yield
TTM yield refers to the percentage of income a specific security has returned to investors over the previous 12 months. Financial pages often present FWD Yield information, which reflects the projected yield for the forthcoming year. The TTM yield reflects the actual dividend, distribution, or interest payments from the past year, measured against the current stock price.
Where TTM Is Found in Financial Analysis
In finance, TTM refers to measuring the financial performance of a company over the past 12 months. This is generally done to either help make better decisions by management, in pursuing financing, or for investors to evaluate and determine its worthiness for their money. By looking at the sales, expenses, and net income over the past 12 months, financial market participants can get a good idea of how well the company is doing.
Benefits of Using TTM
Looking at the trailing twelve month measure for a metric can be helpful for evaluating a company's performance. Choosing to look at the TTM as opposed to other time periods can provide these benefits:
Helps build a baseline: This can give you a baseline of data to go off of to evaluate future performance.
Eliminates seasonality: Taking into account a full year helps you better understand the natural ups and downs of a business through each season.
Up-to-date information: The financial information obtained through this exercise should be up-to-date effective the latest reported quarter.
TTM vs. YTD
- TTM takes a snapshot of the previous 12 months at any point in time. For example, if an analysis was done through March 2024, it would look at performance all the way back to April 2023 and forward.
- A YTD analysis only looks at the current calendar year’s performance. So if the data measurement is performed as of March 1st, then the data will only be for January and February of that year.
A TTM analysis usually provides a better overall financial picture than many short-term indicators, although in cases where a business or economic indicator has experienced swift change, short-term measurements may prove quite insightful.
Bottom Line
Overall, evaluating a business via the TTM can help businesses better understand the financial picture of their business. It can also help investors realize a more complete understanding of how a potential investment performs through every season of the year.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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