About TTM in Finance
TTM stands for ‘Trailing Twelve Months’. It is also known as LTM, i.e., Last Twelve Months. TTM tells us about the overall performance of a company for the past twelve consecutive months. It also provides us with the complete list of the company’s database regarding its work in the past twelve months. By reading this full blog you can acquire complete knowledge about what does TTM means in finance and the TTM calculations.
Trailing Twelve Months: Calculation
This finance term that figures out about the financials of a company in the past 12 years can be calculated on the basis of their turned up reports about the financials based on the Generally Accepted Accounting Principles (GAAP). Following are the ways of calculating TTM by different approaches:-
- Income Statements: The companies turn up their reports about the financials monthly or quarterly. These reports are known as the Income Statements. Income statements can be used to calculate the TTM of the company. The simplest way of calculating the TTM of a company is by adding up the numbers from the reports or the income statements of the last four quarters. Let us see the simple formula for the calculation of the TTM financials of a company:-
Trailing Twelve Months = Q1+ Q2+ Q3+ Q4
Where, Q1, Q2, Q3, and Q4 are the quarterly reports of the last four quarters for a particular company.
TTM can also be calculated for semi-annual basis reports. What you need to do is simply sum up the values of the last 2 periods and get the trailing twelve months.
- Balance Sheets: A company’s balance sheet is the financial statement that gives an overall summary of the profits and losses, liabilities, and assets. Calculating TTM with the help of a balance sheet can be very easy and helpful. You just need to prepare the balance sheet of the past 12 months which is typically used to carry out a comparison with the balance sheet of the previous year. Now you need to take the numbers of the most recent period which will define the TTM of the balance sheet.
- Cash Flow Statements: The way you got information about the financials from Income Statements and about the assets and liabilities from the Balance Sheets, the Cash Flow Statements defines your company’s investing, operating, and financing of the cash flows. This finance statement can again be helpful while calculating the trailing twelve months. Here, just like the calculation in Income statements, you need to simply sum up the numbers monthly or quarterly or on a semi-annual basis.
Trailing Twelve Months: Importance
Managing a company’s financials and its reports is a sensitive job in itself. A slight mistake or negligence can make bigger complications. To avoid such complications, TTM has been introduced. TTM typically gives the gist about a company’s annual profits. It helps to determine the company’s annual cash flows, data like internal audits, various corporate planning, and an overall financial analysis in one go. Calculation of TTM can provide you with the recent financial data in detail.
It is also important as it helps the analysts and other financial professionals to evaluate the financial health of your company. With the help of TTM, they can get an accurate result about the valuation of your company’s credit analysis throughout the year. This will not be easy if they opt for going with the calendar year financial data as it will not provide them with an accurate picture of your company’s financial situation.
Following are the reasons why calculating the Trailing Twelve months of your company can be helpful:
Tracks the Leading Indicators
Calculation of the trailing twelve months can help you in making the right strategy while planning and running a business and can also guide you to make wiser decisions about improving your performance, driving the sales, and achieving various other business goals. It gives you a vision of the trends so that you can track the leading indicators quickly. The leading indicators may include the net income and gross profits etc.
The seasonal fluctuations and alterations can be eliminated with the help of TTM. Relying on TTM will provide you a more specific and accurate scenario about the economic health of your business. There may occur many variations in the business. TTM tells you about those variations with accurate analysis and tells you if you are lagging so that you can eradicate the mistakes.
Provides Updated Financial Data
Who would mind getting updated reports about the business’s work performance with ease?
Trailing Twelve Months helps you to get this. You need not wait for the yearly reports of your company’s performance. With the help of TTM, you can get the updated reports and analyses about the financial health of your business monthly or quarterly. This helps you to control the pace of work according to the analyzed data about the work performance of your company.
Helps the Financial Analysts
By having the calculation for the trailing twelve months you can help financial professionals like lenders or analysts to get to know about the profits made by your company. This will imply their further economic support for the company. The lenders will get the idea about the increase in the revenue of your company and the analysis will be easier and accurate.
Trailing Twelve Months: Cons
We have discussed the various significance of the trailing twelve months. Let us now look at how we can face trouble if we miss handling the TTM calculations correctly.
- There might be businesses with complicated data reports about their finances and cash flow. In such cases, only the accountants and the bookkeepers of the company can be able to handle the financial calculations and quarterly or yearly reports. So the calculation of TTM would not be of great help for such companies.
- If your company does not have access to the TTM calculation software and the bookkeepers are calculating the TTM manually, this can be subject to error, hence not very helpful.
- While calculating the tax liability for your company, TTM would not help you even if you make tax payments quarterly.
Normally, the calculations are made easy and the simplest formulae are found to calculate the taxes, turnover, and the complete profit or loss of a company, but it is difficult to calculate the expenses over a particular period of time. To avoid difficulties, TTM is found and the blog explained what does TTM means in finance, TTM calculations, Financial Analytics, and the TTM Cons. Leave your comment below on how this blog is helpful to you.