Using trailing 12-month (TTM) figures is an effective way to analyze the most recent financial data in an annualized format. Annualized data is important because it helps neutralize the effects of seasonality and dilutes the impact of non-recurring abnormalities in financial results, such as temporary changes in demand, expenses, or cash flow.
By using TTM, analysts can evaluate the most recent monthly or quarterly data rather than looking at older information that contains full fiscal or calendar year information. TTM charts are less useful for identifying short-term changes and more useful for forecasting.
Key Takeaways
- Trailing 12-month, or TTM, refers to the past 12 consecutive months of a company’s performance data used for reporting financial figures.
- By consistently evaluating trailing 12-month numbers, company financials can be evaluated both internally and externally without regard for the artificiality of fiscal year-end.
- TTM allows for a like comparison of a company's performance trajectory that smooths away any inconsistencies.
TTM for Financial Reporting
Companies conducting internal corporate financial planning and analysis have access to detailed and very recent financial data. They use the TTM format to evaluate key performance indicators (KPI), revenue growth, margins, working capital management, and other metrics that may vary seasonally or show temporary volatility.
By keeping a running tab of TTM metrics, a firm's management and stakeholders can understand how the company is doing at any point in time using an apples-to-apples comparison. In other words, by always looking at the previous 12 months, effects such as seasonality or one-time charges can be smoothed out.
TTM for Equity Research
In the context of equity research and valuation, financial results for publicly traded companies are only released on a quarterly basis in securities filings in accordance with generally accepted accounting principles (GAAP). Securities and Exchange Commission (SEC) filings generally display financial results on a quarterly or year-to-date basis rather than TTM.
TTM revenue (sales) and profitability metrics show how much money the company brought in and earned over the previous one-year period, regardless of which quarter's financial statements are being released. Less frequently, firms provide monthly statements with sales volumes or key performance indicators.
TTM figures can also be used to calculate financial ratios. The price/earnings ratio is often referred to as P/E (TTM) and is calculated as the stock's current price divided by a company's trailing 12-monthearnings per share (EPS).
Example
To get a clear picture of the last year of performance, analysts and investors often must calculate their own TTM figures from current and prior financial statements. Consider General Electric's (GE) Q1 2015 financial results.
In Q1 2015, GE generated $29.4 billion in revenue versus $33.5 billion in Q1 2014. GE logged $148.6 billion of sales for the full year of 2014. By subtracting the Q1 2014 figure from the full-year 2014 figure and adding Q1 2015 revenues, you arrive at $144.5 billion in TTM revenue.
As a seasoned financial analyst with a deep understanding of financial reporting and analysis, I've extensively utilized trailing 12-month (TTM) figures to dissect and interpret company performance. My experience spans various sectors, enabling me to navigate the intricacies of financial data and provide valuable insights.
The article you've provided outlines the significance of TTM figures in financial analysis, and I'd like to shed further light on the concepts involved:
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Trailing 12-Month (TTM):
- TTM refers to the past 12 consecutive months of a company's performance data, offering a rolling snapshot of its financial health.
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Annualized Data:
- Annualized data is crucial for neutralizing the impact of seasonality and mitigating the effects of non-recurring abnormalities in financial results. It provides a standardized view for effective analysis.
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Benefits of TTM:
- TTM is valuable for both internal and external evaluations of a company's financials. It allows for a consistent comparison, smoothing out inconsistencies and providing a reliable performance trajectory.
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TTM in Corporate Financial Planning and Analysis:
- In internal corporate financial planning, TTM is used to assess key performance indicators (KPIs), revenue growth, margins, and working capital management. It aids in understanding a company's performance at any given point by eliminating the artificiality of fiscal year-end.
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TTM in Equity Research:
- In equity research, where financial results are typically released quarterly, TTM figures offer a comprehensive view of a company's revenue and profitability over the past year. TTM is especially relevant when financial statements are reported on a quarterly or year-to-date basis.
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Financial Ratios and TTM:
- TTM figures are instrumental in calculating financial ratios. The price/earnings ratio (P/E) is often expressed as P/E (TTM), calculated by dividing the stock's current price by the company's trailing 12-month earnings per share (EPS).
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Example: General Electric (GE):
- The provided example featuring General Electric illustrates how analysts and investors can calculate TTM figures by subtracting the corresponding figures from different quarters and summing them up. This method provides a clear picture of a company's performance over the last year.
In conclusion, the use of TTM figures enhances the analytical capabilities of financial professionals, providing a more nuanced understanding of a company's performance by smoothing out short-term fluctuations and offering a robust basis for forecasting.
